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Cross-border branching in the Latin American banking sector

Luiz Paulo Lopes Fávero (Universidade de Sao Paulo, Sao Paulo, Brazil)
Marco Aurélio dos Santos (Universidade de Sao Paulo, Sao Paulo, Brazil)
Ricardo Goulart Serra (Fundacao Escola de Comercio Alvares Penteado, Sao Paulo, Brazil) (Instituto de Ensino e Pesquisa, Sao Paulo, Brazil)

International Journal of Bank Marketing

ISSN: 0265-2323

Article publication date: 8 May 2018

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Abstract

Purpose

Branching is not the only way for foreign banks to enter a national market, and it is impractical when there are informational and cultural barriers and asymmetries among countries. The purpose of this paper is to analyze the determinants of cross-border branching in the Latin American banking sector, a region with regulatory disparity and political and economic instability, offering elements to a grounded strategic decision.

Design/methodology/approach

This study uses data from six Latin American countries. To account for the preponderance of zero counts, classes of zero-inflated models are applied (Poisson, negative binomial, and mixed). Model fit indicators obtained from differences between observed and estimated counts are used for comparisons, considering branches in each region established by banks from every other foreign region of the sample.

Findings

Branching by foreign banks is positively correlated with the population, GDP per capita, household disposable income, and economic freedom score of the host country. The opposite holds for the unemployment rate and entry regulations of the host country.

Originality/value

Few paper address cross-border banking in emerging economies. This paper analyzes cross-border branching in Latin America in the context of the current financial integration and bank strategy. Econometrically, its pioneering design allows modeling of inflation of zeros, over-dispersion, and the multilevel data structure. This design allowed testing of a novel country-level variable: the host country’s economic freedom score.

Keywords

Citation

Fávero, L.P.L., dos Santos, M.A. and Serra, R.G. (2018), "Cross-border branching in the Latin American banking sector", International Journal of Bank Marketing, Vol. 36 No. 3, pp. 496-528. https://doi.org/10.1108/IJBM-01-2017-0003

Publisher

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Emerald Publishing Limited

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