Bank Competition and The Price of Credit: Evidence Using Mexican Loan Level Data

Cañón, Carlos; Cortés, Edgar; Guerrero, Rodolfo

doi:10.18235/0002521

Cited by 5 publications

(3 citation statements)

References 12 publications

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“…These are straightforward measures and have been widely employed in the banking literature to measure lending activities. We include numerous bank-level and country-level control variables in line with the relevant literature [ 38 – 40 ]. As bank-level control variables, we consider bank liquidity (share of liquid assets in total assets), bank size (natural logarithm of total bank assets), capital (share of equity in total assets), and diversification (share of non-interest income in operating income).…”

Section: Methodsmentioning

confidence: 99%

Is competition good or bad for the price, quantity, and quality of bank lending?

Huynh

2023

PLoS ONE

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This paper extends the existing literature by examining an important channel through which bank competition could drive the real economy by comprehensively influencing bank lending in three components–price, volume, and quality. For the measurement of bank competition, we build a series of different structural (concentration indicators) and non-structural (Lerner, Boone, and Panzar-Rose H-statistic indexes) measures, given that the reliance on solely one individual measure could lead to a misleading conclusion. Through a sample of commercial banks during 2007–2021 in a single Vietnamese banking market, we find a decline in bank loan growth and a rise in credit risk under the pressure of high competition. With respect to the association between bank competition and the price of credit, our empirical evidence is mixed based on different measures to analyze the banking market structure. Our findings support the view that greater competition results in a less proliferated banking sector with riskier assets. We also confirm that these findings are robust to additional tests, including employing alternative measures of bank lending dimensions and market structure, removing the periods of the financial crisis and the COVID-19 pandemic, and changing the empirical estimation technique. In addition, our deeper analysis reveals that the adverse impact of bank competition on lending, shown by reduced credit supply and increased credit risk, is less pronounced for banks with a higher degree of income diversification. This result suggests that bank diversification may protect the quantity and quality of bank lending from the detrimental competition effect.

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Section: Methodsmentioning

confidence: 99%

Is competition good or bad for the price, quantity, and quality of bank lending?

Huynh

2023

PLoS ONE

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“…Reducing such asymmetries would likely expand financial access to formal credit. Households with a higher level of education are also more likely to be aware of credit sources, and regions with greater average schooling use more formal credit in Mexico (Campero and Kaiser, 2013 [43]). Asset ownership, another proxy for creditworthiness, also increases the probability of contracting a credit by 10 percentage points.…”

Section: Box 3 Which Factors Hinder the Demand For Formal Financial S...mentioning

confidence: 99%

Expanding access to finance to boost growth and reduce inequalities in Mexico

2022

OECD Economics Department Working Papers

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“…More generally, the literature focusing on emerging market economies finds that the pass-through is stronger in countries with higher banking sectors' competition, a credible inflation targeting regime, better institutional frameworks, higher exchange rate flexibility, low levels of financial dollarization and a more developed financial sector (Barquero-Romero and Cendra-Villalobos, 2020 [17]; Mishra et al, 2014[12]; Medina Cas, Carrion-Menendez and Frantischek, 2011 [4]; Ozdemir and Altinoz, 2012 [11]; Bulíř and Vlček, 2015 [18]).…”

Section: The Role Of Interest Rate Pass-through In the Monetary Polic...mentioning

confidence: 99%

The pass-through of the monetary policy rate into lending rates in Mexico

2022

OECD Economics Department Working Papers

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2  ECO/WKP(2022)35 THE PASS-THROUGH OF THE MONETARY POLICY RATE INTO LENDING RATES IN MEXICO UnclassifiedOECD Working Papers should not be reported as representing the official views of the OECD or of its member countries. The opinions expressed and arguments employed are those of the author(s).Working Papers describe preliminary results or research in progress by the author(s) and are published to stimulate discussion on a broad range of issues on which the OECD works.Comments on Working Papers are welcomed, and may be sent to OECD Economics Department,

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Bank Competition and The Price of Credit: Evidence Using Mexican Loan Level Data

Cited by 5 publications

References 12 publications

Is competition good or bad for the price, quantity, and quality of bank lending?

Is competition good or bad for the price, quantity, and quality of bank lending?

Expanding access to finance to boost growth and reduce inequalities in Mexico

The pass-through of the monetary policy rate into lending rates in Mexico

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