Has foreign bank entry led to sounder banks in Latin America?

Policymakers continue to debate the merits of opening emerging market financial sectors to foreign ownership. A comparison of the 1995-2000 performance of foreign and domestic banks in select Latin American countries reveals that while foreign banks differed little from their domestic counterparts in overall financial condition, they showed more robust loan growth, a more aggressive response to asset quality deterioration, and a greater ability to absorb losses_characteristics that could help to strengthen the financial systems of their host countries.Banks and banking - Latin America ; Banks and banking, Foreign ; Economic development - Latin America

Does foreign ownership contribute to sounder banks in emerging markets? the Latin American experience

Foreign bank entrants into emerging markets are usually thought to improve the condition and performance of acquired institutions, and more generally to enhance local financial stability. We use bank-specific data for a range of Latin American countries since the mid-1990s to address elements of this claim. Across the seven largest countries, we find that the financial strength ratings of local banks acquired by foreign entities generally show a slight improvement relative to their domestic counterparts. Our more in-depth case studies of Chile, Colombia, and Argentina do not indicate striking differences in health between larger foreign and domestic retail-oriented banks (although state banks are noticeably weaker). However, foreign banks often have higher average loan growth, higher average provisioning expense, and greater loss-absorption capacity. These results suggest that foreign ownership may provide important positive influences on the stability and development of emerging market banking systems.International finance ; Latin America ; Banks and banking