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Determinants of bank performance: evidence for Latin America

ISI: Determinants of bank performance: evidence for Latin America

JOSÉ ARIAS M., MAURICIO JARA B., ARTURO RODRIGUEZ P.

2014 - Academia Revista Latinoamericana de Administración - Vol. 27, N° 2, Pp. 164 - 182

Abstract

Purpose: We analyze the impact of macroeconomic-industrial and bank-specific factors on Latin American banks’ performance.

Methodology: Using the data panel system estimator version of the generalized method of moments, we 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.

Findings: On the one hand, the results show that bank performance is positively related to both 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.

Originality: We provide new evidence from the Latin American bank industry and incorporate the effect of diversification through non-interest activities.

JEL classification: G21

Keywords

G21, performance, diversification, credit risk, industry concentration, interest margin, Latin American bank industry 

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