Privatization of banks in Argentina: The path to more efficient banking?

Working papers (original series) | 1998 | N 4

Abstract

The privatization of public banks is part of a profound restructuring process that took place in the Argentine financial system since the beginning of Convertibility in 1991. Although privatizations affect the economy through different channels, we focus here on their effects. . directors on the performance of the banking industry. We chose two different paths to answer the following question: did bank privatizations improve the performance of the Argentine banking sector? First, we compare conventional performance indicators, such as average costs, ROA, etc., of the current system with those of a hypothetical fully private one. On the other hand, we do an econometric exercise to measure both the scale efficiency and the X-efficiency of public banks vs. To do this, we use two methodologies: the “Distribution Free Approach” and an alternative methodology that allows us to take advantage of the advantages of the panel data technique. The comparison between the current and hypothetical banks shows that private banks have a better portfolio quality than public banks, as well as a higher degree of capitalization. On the other hand, the econometric exercise shows that private banks are more efficient than public ones. There is also evidence of significant economies of scale for all retail banks. We can conclude, therefore, that the privatization process has contributed (and will continue to happen) to increase the efficiency of the banking industry and that the consolidation of the financial sector will result in a significant increase in efficiency.

JEL classification: G38, H42, L80, C23