On net interest margins in the banking sector: A comparative study in Latin American countries

Abstract

This paper aims to analyze bank concentration and its impact on net interest income in five Latin American countries, selecting a set of countries based on their distinctive monetary characteristics and crossborder economic relationships.We run a panel data econometric model for commercial banks operating in both dollarized and non-dollarized countries over the period 2015 to 2019.The banking industry conforms for the most part to an oligopolistic structure with the exception of Panama, which shows evidence of being a competitive market. In addition, bank concentration reduces, to some extent, the intermediation margin in Ecuador, El Salvador, Colombia and Peru. Our results indicate that the relationship between bank concentration and stability supports the concentration-stability hypothesis; higher concentration and well-capitalized banks increase financial stability and financial development. This study makes a significant contribution to the current body of literature by analyzing financial intermediation margins in a group of dollarized and non-dollarized Latin America.