Foreign banks and credit in Mexico

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

The role that foreign banks play in developing countries has been arduously debated. Foreign banks can improve the efficiency of the banking sector in the host country but they can also undermine local banks by selecting only the most trustworthy borrowers. In this paper, I analyze the period between 2005 and 2014 and compare the differences between foreign and domestic banks in Mexico and Colombia. Analyzing Mexico is of great importance given that foreign banks control more than 80% of the banking assets. Also, given the difference in institutional development between Mexico and Colombia, I can control for regulatory environment. After controlling for size, institutional development, and country of origin, I find that foreign banks have not stimulated growth in Mexico through commercial loans. Previous studies suggest that this lack of credit to companies may be due to a weak enforcement of contracts rather than to foreign ownership. However, Colombia has a weaker enforcement of contracts environments and foreign banks also do not provide as many commercial loans as domestic banks. This paper is of particular interest to regulators in developing countries that need foreign capital and those that want to intensify the allocation of commercial credit.

Original languageEnglish (US)
Pages (from-to)77-93
Number of pages17
JournalGlobal Finance Journal
Volume30
DOIs
StatePublished - May 1 2016

Fingerprint

Foreign banks
Mexico
Credit
Colombia
Enforcement
Developing countries
Institutional development
Loans
Country of origin
Foreign capital
Assets
Banking sector
Regulatory environment
Host country
Foreign ownership
Banking

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Cite this

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title = "Foreign banks and credit in Mexico",
abstract = "The role that foreign banks play in developing countries has been arduously debated. Foreign banks can improve the efficiency of the banking sector in the host country but they can also undermine local banks by selecting only the most trustworthy borrowers. In this paper, I analyze the period between 2005 and 2014 and compare the differences between foreign and domestic banks in Mexico and Colombia. Analyzing Mexico is of great importance given that foreign banks control more than 80{\%} of the banking assets. Also, given the difference in institutional development between Mexico and Colombia, I can control for regulatory environment. After controlling for size, institutional development, and country of origin, I find that foreign banks have not stimulated growth in Mexico through commercial loans. Previous studies suggest that this lack of credit to companies may be due to a weak enforcement of contracts rather than to foreign ownership. However, Colombia has a weaker enforcement of contracts environments and foreign banks also do not provide as many commercial loans as domestic banks. This paper is of particular interest to regulators in developing countries that need foreign capital and those that want to intensify the allocation of commercial credit.",
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Foreign banks and credit in Mexico. / Serrano, Alejandro.

In: Global Finance Journal, Vol. 30, 01.05.2016, p. 77-93.

Research output: Contribution to journalArticle

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