Determinants of Bank Performance: Evidence for Latin America
25 Pages Posted: 2 Feb 2014
Date Written: December 1, 2013
We analyze the impact of macroeconomic-industrial and bank-specific factors on Latin American banks’ performance. For that purpose, we use a data panel system estimator version of the generalized method of moments to estimate the determinants of return on assets and interest margin for a sample of 78 commercial banks from Argentina, Brazil, Chile, Colombia, México, Paraguay, Peru, and Venezuela over the period from 1995 to 2010. Our results show that, on the one hand, bank performance is positively related to idiosyncratic factors, such as service diversification, size, capital ratio, and specialization degree, and to macroeconomic-industrial factors such as economic growth, inflation, and bank concentration. On the other hand, the results show that bank performance is negatively related to credit risk, liquidity risk, and operational inefficiencies.
Keywords: Latin American bank industry, diversification, performance, interest margin, industry concentration, credit risk, liquidity risk, operational efficiency
JEL Classification: G21
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