Growth, profits and foreign ownership in the Brazilian banking industry

ABSTRACT

The deregulation of the financial markets and their progressive globalization has favoured the internationalization of banking. Moreover, during the international financial crisis, the presence of foreign banks has increased in countries experiencing faster economic growth, such as Brazil. In this context, the aim of this study is to analyze the growth and profitability of the financial institutions in Brazil, taking into account the possible non-linearity of the relationship, the differences between Brazilian and foreign institutions and the effect of the crisis. Our results indicate that the entry of foreign institutions has a direct effect on the Brazilian banking industry.

KEYWORDS:

• Banking industry
• firm growth
• profitability
• foreign banks

JEL CLASSIFICATION:

• G00
• G20
• G21

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Services for the management of derivative products and instruments outside of normal operations.

² Specifically, u_i,t = η_i + λ_t + v_k where η_i is the specific part of the error of each unit (unobservable heterogeneity) and which contains the unobservable effects that only affect institution i, λ_t represents the shocks that occur at time t and affect all institutions equally and v_k is a random disturbance.

³ We understand foreign institutions to be those privately owned institutions which operate in Brazil and are subordinate to the parent company of a foreign institution, regardless of whether their entry process into this country was through acquisition or merger with local institutions.

⁴ The dependent variable is considered to be persistent when the value of the coefficient of the lagged dependent variable is close to 1.

Additional information

Funding

This paper has been financially supported by Junta de Extremadura under the V Action Plan for Research and Development 2014/17 through the GIMAF research group (reference GR15027).