Bank Efficiency Amid Foreign Entry: Evidence from the Central American Region

34 Pages Posted: 19 Apr 2010

See all articles by Torsten Wezel

Torsten Wezel

International Monetary Fund (IMF)

Date Written: March 2010

Abstract

This paper investigates the efficiency of domestic and foreign banks in the Central American region during 2002-07. Using two main empirical approaches, Data Envelopment Analysis and Stochastic Frontier Analysis, the paper finds that foreign banks are not necessarily more efficient than their domestic counterparts. If anything, the regional banks that were acquired by global banks in a wave of acquisitions during 2005-07 can keep up with the local institutions. The efficiency of these acquired banks, however, is shown to have dropped during the acquisition year, recovering only slightly thereafter. Finally, it is important to account for the environment in which banks operate, as country-, sector- and firm-specific characteristics are found to have a considerable influence on bank efficiency.

Keywords: Banks, Central America, Cross country analysis, Foreign direct investment, International banking, Productivity

Suggested Citation

Wezel, Torsten, Bank Efficiency Amid Foreign Entry: Evidence from the Central American Region (March 2010). IMF Working Paper No. 10/95, Available at SSRN: https://ssrn.com/abstract=1590708

Torsten Wezel (Contact Author)

International Monetary Fund (IMF) ( email )

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