Bank Privatization in Developing Countries 4

Journal of Banking & Finance 29 (2005) 19051930 www.elsevier.
com/locate/jbf
Bank privatization in developing countries: A summary of lessons and ndings

George R.G. Clarke
a b
a,*
, Robert Cull a, Mary M. Shirley
Development Research Group, The World Bank, MSN MC3-300, 1818 H Street NW, Washington, DC 20433, United States Ronald Coase Institute, 5610 Wisconsin Avenue, #1602, Chevy Chase, MD 20815, United States Available online 25 March 2005
Abstract Although a large and growing literature shows that privatization can improve the performance of non-nancial enterprises, there is less evidence on how it aects the performance of the banking sector. This paper summarizes the results from the papers in the special issue of the Journal of Banking and Finance on bank privatization. It concludes that although bank privatization usually improves bank eciency, gains are greater when the government fully relinquishes control, when banks are privatized to strategic investors, when foreign banks are allowed to participate in the privatization process and when the government does not restrict competition. 2005 Elsevier B.V. All rights reserved.
JEL classication: G21; D21 Keywords: Bank privatization; Foreign entry
1. Introduction Although state-owned banks dominate the banking sectors of few developed economies, they play an important role in many developing countries. In 1999, government controlled banks held more than 30% of banking sector assets in a quarter
*
Corresponding author. Tel.: +1 202 473 7454; fax: +1 202 522 1155. E-mail address: gclarke@worldbank.org (G.R.G. Clarke).
0378-4266/$ - see front matter 2005 Elsevier B.V. All rights reserved. doi:10.1016/j.jbankn.2005.03.006
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G.R.G. Clarke et al. / Journal of Banking & Finance 29 (2005) 19051930
of the developing countries for which we have information. In comparison, this was true for only two of the 20 developed countries for which data were available (Barth et al., 2001a). The continued importance of state-owned banks in developing countries is worrying given the large, and growing, literature that nds that state ownership hurts enterprise performance, especially in competitive sectors. Although privatized enterprises are often less ecient than new private entrants, there is considerable evidence that they outperform state-owned enterprises. This suggests that privatizing stateowned banks might improve bank eciency and boost nancial sector performance. The papers in this symposium present new evidence on bank privatization. Much comes from a series of country case studies that are based on detailed panel datasets for many and in some cases all banks in each country. These data enable the authors to measure performance gains or losses following privatization and to compare these changes with trends for other banks in the country. The case studies cover ve individual countries (Argentina, Brazil, Mexico, Nigeria, and Pakistan) and two regions containing eleven more countries (Eastern Europe: Bulgaria, Croatia, the Czech Republic, Hungary, Poland, and Romania; East Asia: Indonesia, Korea, Malaysia, Philippines, Thailand), chosen because they had high state ownership before privatization and because they privatized many banks. The evidence from the case studies is reinforced by several cross-country studies, which take a broader look at similar issues. One of the lessons from these studies is that privatization often although not always improves bank performance. The studies also suggest things that aect the success of reform: whether the government continues to hold shares in the bank following privatization; whether the bank is sold to a strategic investor or shares are dispersed widely through a share-issue privatization; whether the government permits foreign investors to participate in the privatization process; and what steps the government takes to encourage or discourage competition. Although many governments in developing countries have privatized state owned banks, some have resisted, others have renationalized previously privatized banks, and many have privatized using approaches that failed to yield the full gains from privatization. To understand why they did this, it is important to understand how politics aects privatization decisions. The papers in this symposium also identify political factors that have aected the design and timing of bank privatization and discuss how this has aected its success.
2. Eect of privatization on rm performance: Non-nancial enterprises A large theoretical and empirical literature, summarized in Shirley and Walsh (2000), looks at how government ownership and privatization aect enterprise performance. Arguments in favor of government ownership often assume that governments are well or even perfectly informed and that they try to maximize social welfare. If this was true, government ownership might be an easy and cheap way for governments to correct market failures (Sappington and Stiglitz, 1987), tackle
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natural monopolies (Millward, 1982), reduce inequality, and meet other social goals (Willner, 1996). Governments could use state owned banks to raise capital for projects with high social, but low private, returns and provide nance to poor borrowers that are neglected by less well informed or motivated private bankers. Public choice theories of government challenge the idea of a benevolent all-knowing government, suggesting that politicians and bureaucrats might instead use state ownership to secure political oce, accumulate power, or seek rents.1 If politicians do this, they might be especially likely to do so in weak institutional environments, where voters have less information and are less able to monitor enterprise performance in other words, in developing countries. Empirical evidence that stateowned enterprises have been used to nance politically motivated projects and, that they hire too many employees and open too many oces support the public choice theory of government (Donahue, 1989; Jones, 1985; Kikeri et al., 1992; Li and Xu, 2004; World Bank, 1995). There are three main reasons why public enterprises might perform less well than private, and privatized, enterprises: political intervention, corporate governance problems, and problems associated with competition (Shirley and Walsh, 2000). The rst problem is that politicians and bureaucrats can use state-owned enterprises to further their political or personal goals. Although politicians can also encourage private rms to subsidize their constituents, private owners might be better motivated and more able to oppose such interventions than public bureaucrats (Galal, 1991; Shirley and Nellis, 1991; Shleifer and Vishny, 1994; World Bank, 1995). For example, the prot-oriented owner of a private bank, especially if foreign, might be more motivated to protect the banks prudential lending policies or costs minimization rules from government intervention than a public manager would be. Privatization could also prevent state-owned enterprise employees and other interest groups from either capturing the government body charged with monitoring the state enterprise (Borcherding et al., 1977; Borcherding et al., 1982) or bribing corrupt politicians to protect their interests (Shleifer and Vishny, 1994). Although capture or corruption can occur with private ownership, the direct ownership link raises the likelihood. Empirical observation supports the argument that state-owned enterprises are more subject to intervention (Claessens and Peters, 1997; Djankov, 1999; Shirley and Nellis, 1991; World Bank, 1995). The second reason why public enterprises might perform worse than private enterprises is that corporate governance might be weaker in state-owned enterprises than in private rms because of agency problems. State-owned enterprises have many objectives and many principals who have no clear responsibility for monitoring (Alchian, 1965). Large private corporations also have many small shareholders, information asymmetries between owners and managers, and problems dening goals and holding management accountable. Yet even private rms with highly diffuse ownership will be better governed than state-owned enterprises according to these studies. Alchian (1965) argues that because all citizens of a country jointly
See, for example, Buchanan (1969), Niskanen (1971, 1975).
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own the state-owned enterprise, its ownership is more widely distributed than a private rms ever could be. Also, because individual citizens cannot sell their shares in a state-owned enterprise, they gain less from monitoring performance. Without a market for ownership, information on rm performance will be scarce and non-comparable (Lin et al., 1998; Vickers and Yarrow, 1989). In an opposing view, Yarrow (1986) argues that the government is the sole, concentrated owner of the state-owned enterprise. Without the checking inuence of smaller owners, politicians and bureaucrats are able to use state ownership to pursue inecient goals (Vickers and Yarrow, 1989; Vining and Boardman, 1992). In addition to being less well monitored, public enterprises have other corporate governance-related problems. Because public managers do not face a market for their skills or a credible threat of losing their job for non-performance and are less likely to receive performance related pay, they are less motivated than private managers would be.2 Poorly performing state-owned enterprises are also less likely to become bankrupt, be liquidated or taken over in hostile takeover, further weakening managerial incentives (Berglof and Roland, 1998; Dewatripont and Maskin, 1995; Schmidt, 1996; Sheshinski and Lopez-Calva, 2003; Vickers and Yarrow, 1989; Vickers and Yarrow, 1991). The nal reason why state-owned enterprises might perform worse than private enterprises is that they might face less competition than private rms. As discussed above, self-interested politicians might use state-owned enterprises to provide patronage jobs or subsidies to favored constituents (Jones, 1985; Shapiro and Willig, 1990; Vickers and Yarrow, 1991). If they do this, state-owned enterprises will be unable to compete in competitive markets and will therefore need subsidies or government guaranteed debt to cover their losses. To reduce the need for subsidies, politicians and bureaucrats might then protect the state-owned enterprises from competition, by making entry more dicult and restricting trade, with a negative impact on eciency (Boycko et al., 1996; Shleifer and Vishny, 1994). Even if politicians do not give the state-owned enterprise monopoly power, state ownership can undermine competition in other ways. Subsidized state-owned enterprises can undercut private rivals that need to be protable to survive (Sappington and Sidak, 2003). For example, a state-owned bank might have more branches, higher deposit rates and lower lending rates than its rivals because it can cover its losses through government subsidies. Rather than using restrictions on competition to reduce the need for subsidies, the subsidies undermine market competition. The empirical evidence supports both views of competition. In some cases governments protect state-owned enterprises by giving them market power and in others they undermine competition by giving subsidies (Jones, 1985; Kikeri et al., 1992; World Bank, 1995). Greater political intervention, weaker corporate governance and less competition are strong arguments against state ownership. But it does not always follow that
Even when managers of state-owned rms are given performance related contracts, Shirley and Xu (1998) note that it is dicult to nd third parties to enforce these contracts, especially in weak institutional environments.
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privatization will cure these ills. The same government ocials responsible for the poor performance of state-owned enterprises are responsible for designing and executing privatization programs. Political objectives, poor information, and principal agent problems compromise the privatized rm and might keep it from performing as well as a de novo private enterprise would. Does this mean that a privatized rm will perform better, the same or worse than it would under state ownership? Many critics of privatization note that privatized rms do not mimic private rms perfectly (Stiglitz, 2000a,b; Cook and Kirkpatrick, 1988; Caves, 1990; Kay and Thompson, 1986). Some authors go so far as to argue that if the root cause of poor state-owned enterprise performance was an institutional environment that hampered voters from holding politicians accountable, then privatization will be as prone to error as state-owned enterprise management (Stiglitz, 2000a,b). Others believe that underdeveloped capital markets, weak court systems, and inadequate procedures for bankruptcy or takeover will prevent privatized rms from performing eciently, especially in developing countries where these market and institutional failures are common (Adam et al., 1992; Caves, 1990; Commander and Killick, 1988; Cook and Kirkpatrick, 1988, 1997; Stiglitz, 2000a). But these criticisms are misguided if privatized rms outperform state-owned enterprises. The empirical evidence suggests that, while privatized rms might not be as ecient as private rms, they are usually more ecient than state-owned enterprises (see studies reviewed in Boardman and Vining, 2004; Borcherding et al., 1982; DSouza and Megginson, 1999; Megginson and Netter, 2001; Millward and Parker, 1983). The most important exceptions are rms sold to incumbent managers and employees in the former Soviet Union, especially Russia, in the early 1990s. This might not be surprising; when these rms were sold to managers and workers, this prevented needed restructuring and limited capital infusions (Barberis et al., 1996; Claessens and Djankov, 1999; Dyck, 2001; Earle et al., 1995; Frydman et al., 1999; Havrylyshyn and McGettigan, 2000; Kane, 1999; Nellis, 2000). When majority shareholdings were sold to outsiders in the former Soviet Union, performance also improved there (Black et al., 2000; Bornstein, 1994; Earle, 1998; Earle and Estrin, 2003). In summary, the evidence suggests that privatization usually improves eciency (Megginson and Netter, 2001).
3. The impact of bank privatization Although few studies deal explicitly with bank privatization, the privatization literature provides good reason to expect that bank privatization will be benecial. The question is whether, and under what circumstances, privatization will improve bank performance. The papers in this symposium, many of which were nanced by the Research Department at the World Bank, provide new evidence on this important subject.3
Megginson (this issue) summarizes the existing literature on bank privatization in greater detail.
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The studies allow us to explore ve questions: how privatization aects bank performance on average; whether benets are smaller when the government retains some ownership in the privatized bank; whether the method of privatization (i.e., direct sale or share-issue privatization) aects outcomes; whether outcomes are better when foreign owned banks are allowed to purchase privatized banks; and what the interaction is between privatization and competition. In many cases, these questions overlap. For example, governments that intend to intervene in bank operations after privatization might be more likely to hold onto some shares and be less willing to sell foreign strategic investors. Competent strategic investors might also be wary when the government continues to hold onto shares, forcing governments to privatize through share-issue privatizations in these cases. So share-issue privatizations may be the preferred sales tactic of governments wishing to loot. Governments that wish to divert bank funds will also prefer to limit competition and may confer oligopolistic powers on political cronies. 3.1. The impact on bank performance The privatization literature suggests that privatized banks should outperform similar state-owned banks. But the success of privatization will depend on how successfully privatization resolves the corporate governance problems associated with public and private ownership and the eect that privatization has on competition. In this section, we propose several hypotheses and consider the empirical evidence from the studies in this symposium that support or refute them. Hypothesis 1: Bank performance will improve after privatization. Theory suggests that privatization improves performance by limiting harmful government intervention in state-owned enterprises. In non-nancial enterprises, politicians and bureaucrats often provide jobs or subsidized goods or services to political constituents. Banks, however, provide greater opportunities for political intervention. Besides providing interest rate subsidies and jobs, politicians can also loot banks and divert deposits. Because banks move money, politicians can use them to subsidize supporters in more ways than they can use non-nancial enterprises and these interventions will often be harder to detect. Despite variations across countries and across privatized banks in the same country, the studies in this symposium suggest that bank performance improved after privatization in most cases (see Tables 1 and 2). The results from the case studies are supported by cross-country evidence. Using data from 81 privatizations in 22 low- and middle-income countries, Boubakri et al. (this issue) nd that several, but not all, performance measures improved after privatization. But the results were not uniform; performance improved more in some countries than in others and one cross-country study of share-issue privatizations found few gains from privatization (Otchere, this issue). The detailed information in the case studies allows us to analyze the role of environmental factors. For example, the improvements observed during the second round
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of privatization in Nigeria suggests that privatization can improve bank performance even in an inhospitable macroeconomic and regulatory environment and even when the government sells the weakest banks (see Beck, Cull and Jerome, this issue). But this episode also shows how an adverse macroeconomic and regulatory environment reduces the benets of privatization: the performance of privatized banks improved in the rst year after privatization but did not improve after that. Further, privatization did not stimulate performance improvements among non-privatized banks and banks that focused on retail lending performed worse than banks that invested in government bonds and engaged in other non-lending activities. Although some performance measures improved, not all measures improved in all studies. Measures of costs and cost eciency improved less often than measures of protability and prot eciency. For example, although prot eciency and loan portfolio quality improved in Argentina after privatization, cost eciency did not improve (see Berger et al., this issue). One reason for this is that the privatization contracts in Argentina imposed restrictions on ring and branch closing, preventing the new owners from lowering their costs. The studies also emphasize the importance of looking at the impact of privatization several years after the initial event. Some changes, such as improving portfolio quality, introducing information technology, or rationalizing a branch network, could take several years to implement. Further, restructuring can be costly and, therefore, might lead to a temporary increase in costs or reduction in prots. Several of the studies found results consistent with this idea. Bonin, Hasan and Wachtel (this issue) nd that banks in Eastern Europe that were privatized earlier were more ecient than banks that were privatized later. Similarly, Boubakri et al. (this issue) nd that although credit risk and economic eciency improved over time in their cross-country sample, the benets were not immediate. Another reason to focus on the long term impact of privatization is that some apparent benets might decline over time. For example, in Argentina, large parts of the public provincial banks loan portfolios were transferred out of the banks portfolios at the time of privatization, leading to an large improvement in portfolio quality at the time of privatization (Berger et al., this issue). In this case, although portfolio quality declined slightly over time, the decline was small relative to the large improvement suggesting the potential for long term gains. Only one case study, Argentina, looked at whether the privatized banks changed their lending strategies after privatization. Privatized banks in Argentina cut total lending and lending in local currency, signaling greater prudence. Immediately after privatization, mortgage lending and agricultural lending also fell, although lending to these sectors grew in later years. The quality of lending to these sectors improved after privatization, probably because screening improved. Hypothesis 2: Performance gains will be smaller when the government retains shares in the privatized bank. As with non-nancial enterprises, we expect that performance will improve less after privatization when the government retains partial ownership of the privatized
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Table 1 Eect of privatization on the performance of privatized banks in papers in symposium Country case studies Argentina Brazila Czech Republic (voucher privatization) East Asia (Indonesia, Korea, Malaysia, Philippines, Thailand) Eastern Europe (Bulgaria, Czech Republic, Croatia, Hungary, Poland and Romania)b Improved Prot eciency, return on equity, non-performing loans Return on equity, return on assets, costs/assets, total factor productivity Prot eciency Prot eciency, return on assets, cost ratioc Net interest margin, cost eciency Interest margin Overhead costs, cost eciency, prot eciency Cost eciency Return on equity Impaired assets to loans, return on equity, return on assets, net interest marginh Interest rate risk No change/mixed Cost/assets, cost eciency Deteriorated
Prot eciency, cost eciency Cost eciency
Mexico (rst privatization)d Mexico (second privatization)e Nigeria Pakistan Cross-country Boubakri et al. (this issue)f Otchere (this issue)
Costs/assets Return on assets, return on equity, non-performing loans Prot eciency Net interest margins, non-performing loans, capital adequacy Provisions to loansg
Net nancial margin
Note: Improved means (statistically signicant) improvements observed in main model specication. No change/mixed implies statistically insignicant changes or mixed results (i.e., some negative and some positive results depending on model specications or variables denitions). Deteriorated means (statistically signicant) deteriorations in performance. In some papers, statistical signicance of performance measures varies between model specications. In these cases, we generally rely upon the authors description of results or authors preferred model specication. Source: Berger et al. (this issue); Beck, Crivelli, and Summerhill (this issue); Beck, Cull and Jerome (this issue); Bonaccorsi di Patti and Hardy (this issue); Bonin, Hasan and Wachtel (this issue); Boubakri et al. (this issue); Haber (this issue); Nakane and Weintraub (this issue); Otchere (this issue) Williams and Nguyen (this issue). a Cost eciency improved only for banks that were privatized by the state governments and return on equity improved only for banks that were privatized after being taken over by the federal government. b Study includes results for several other measures of bank performance. The measures summarized in the table are chosen for comparability with results from other studies. c Prot eciency improved only for banks with a strategic foreign investor. Prot and cost eciency results are based upon comparisons of state and privatized banks. Other measures are based upon comparisons of pre- and post-privatization performance. d Banking crisis occurred with most banks being intervened, aggregate performance measures (e.g., non-performing loans) worsened. e Several aggregate measures of banking sector performance improved including capital/asset ratios, non-performing loans. f The eects reported are three years after privatization. These eects are modied if the method of privatization or the ownership of privatized bank is accounted for. The largest impact of those factors is felt on net interest margin, risk and capital adequacy. See Boubakri et al. (this issue) for more details. g Although provisions to loans fell for privatized banks after privatization, it remained higher than for always private banks. h Paper includes additional measures that also showed no improvement. The measures summarized in the table are chosen for comparability with results from other studies.
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Table 2 Bank performance after privatization in country case studies, by extent of government ownership In cases in which the government kept NO SHARES of stock in the banks Two showed notable improvement Argentina (direct sale to strategic investor) Brazil, privatization (direct sale to strategic investor) Five showed some improvement Czech Republic, second phase of privatization (direct sale to strategic investor) Hungary (direct sale to strategic investor) Poland, second phase of privatization (direct sale to strategic investor) Mexico, second phase of privatization (direct sale to strategic investor) Nigeria, second phase, full divestitures (share oering, foreign ownership not permitted) Only one showed no improvement Mexico, rst phase of privatization (direct sale, foreign ownership not permitted) In cases in which the government kept a MINORITY SHARE of stock in the banks One showed notable improvement Pakistan (direct sale to strategic investor) None showed some improvement One showed no improvement Nigeria, rst phase of privatization, maintained minority shareholding In cases in which the government kept a MAJORITY SHARE of stock in the banks None showed notable improvement One showed some improvement Poland, rst privatization (share oering, foreign ownership permitted) Two showed no improvement Brazil, restructuring Czech Republic, rst privatization (share oering, foreign ownership not permitted) Note: Evidence from case-studies was supplemented with additional information based upon discussions with authors of case studies. Source: Bauhmol-Weintraub and Nakane (this issue); Beck, Crivelli, and Summerhill (this issue); Beck, Cull and Jerome (this issue); Berger et al. (this issue); Bonaccorsi di Patti and Hardy (this issue); Bonin and Wachtel (2000, 2003); Bonin, Hasan and Wachtel (this issue); Haber (this issue).
bank. Because banks manage other peoples money, continued state-ownership will allow politicians to continue to loot and will therefore have an unambiguously negative impact on bank performance. As expected, privatization produced modest benets when governments retained majority control or even sizable minority stakes in the privatized banks (see Table 2). For example, the rst rounds of privatization in the Czech Republic and Poland, when the governments maintained large ownership stakes, were less successful than the second rounds, when the governments divested most or all their shares (Bonin and Wachtel, 2000, 2003). In the rst round of privatization in Poland, the Treasury retained a 30% stake, employees purchased up to 20% of the shares on preferential terms, and the remaining shares were divided between branches for large and small investors. The performance of the privatized banks improved a little, but the subsequent divestiture of all government shares led to more obvious gains (Bonin and Wachtel, 2000, 2003).
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In the rst round of privatization in the Czech Republic, the Czech government distributed vouchers, with most invested in funds that were often created by banks. These investment funds gained large stakes in nancial and non-nancial rms, resulting in interlocking ownership between the banks and their clients. The state also retained shares and therefore a substantial inuence over the banks operations. Not surprisingly, neither cost nor prot eciency improved for these banks (Bonin, Hasan and Wachtel, this issue). The banks continued soft-lending to many of their large voucher-privatized clients resulted in bank performance deteriorating; government bail-outs were needed before foreign investors could be attracted in the second round (Cull et al., 2002). Bank performance improved after the second round (see Table 2). The experience in Brazil and Nigeria lead to a similar conclusion: continued government ownership is associated with weaker bank performance. State governments in some Brazilian states sold their state-owned banks to strategic investors, while others retained control as they tried to restructure their banks. Performance improved in the fully privatized banks, but remained unchanged or deteriorated in the restructured banks (Beck, Crivelli, and Summerhill, this issue; Nakane and Weintraub, this issue). The Nigerian government maintained a minority interest in some of its privatized banks. There was some improvement in protability and portfolio quality in those banks where the government fully divested its shareholdings, but not in the banks where the government retained minority shareholdings (Beck, Cull, and Jerome, this issue). In fact, the banks with continued minority ownership performed nearly as poorly as the state-controlled banks for some measures of protability. In short, the experience in Nigeria highlights the negative performance eect of even minority government ownership, while the experience in Brazil oers reasons to be skeptical of state restructuring of government-controlled banks.4 The cross-country analyses in this symposium also support this hypothesis. Using a sample of 21 share-issue privatizations from nine developing countries (Croatia, Egypt, Hungary, India, Jamaica, Kenya, Morocco, the Philippines, and Poland), Otchere (this issue) nds that the shares of the privatized banks under-performed the market and there were only modest improvement in the banks operating performance. The share of ownership retained by the government appears to explain a substantial part of the under-performance. Although, as noted above, Boubakri et al. (this issue) found some performance improvements in the 81 banks in their sample after privatization, protability did not improve and interest rate risk actually deteriorated. Many banks in their sample were only partly privatized however only one-quarter of the banks in the sample were fully privatized and, on average, the government retained over one-quarter of bank shares after even three years after privatization. Although performance usually improved after privatization, privatized banks do not always appear to perform as well as new private entrants. Bonin, Hasan and
One might be worried that selection eects are driving these results. However, the pre-privatization performance of those banks where the government fully relinquished its shareholdings was worse than that of the restructured banks in Brazil and the minority government owned banks in Nigeria.
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Wachtel (this issue) found that foreign greeneld banks were the most ecient banks in the six countries in Eastern Europe in their sample. In Pakistan (Bonaccorsi di Patti and Hardy, this issue), when the Pakistani government started the privatization process, it also liberalized entry restrictions, allowing new private banks to enter. These private banks outperformed the privatized banks in the period following privatization.5 Hypothesis 3: Sales to strategic investors, which result in concentrated ownership, will lead to greater performance gains, than share-issue privatizations, which result in dispersed ownership. The third hypothesis is that performance improvements will be greater when a strategic owner takes control of a privatized bank than when shares are sold to many small investors in a share-issue privatization. In studies of transition economies, performance improvements in privatized non-nancial rms have been greater when ownership has been concentrated in the hands of a strategic investor (Frydman et al., 1998; Nikitin and Weiss, 1998). Drawing on the corporate governance literature, which argues that managers will try to serve their own interests at the expense of protability and owner welfare, they argue that concentrated strategic owners are better able to control managers.6 Although information asymmetries always give managers some leeway when negotiating contracts, they will be more pronounced when ownership is dispersed:7 small individual owners have an incentive to free ride o the costly monitoring eorts of others, resulting in a less monitoring.8 Such agency problems are more likely in weak institutional settings where information is poor and safeguards for minority shareholders are weak or non-existent. The case studies covered in this symposium support this hypothesis. The performance of most banks privatized through share-issue privatizations did not improve after privatization, while the performance of banks privatized through sales to strategic investors did (see Table 2). The only case where sales to strategic investors did not result in performance gains was the rst privatization in Mexico, an episode that is discussed in greater detail in the next section of the paper. In contrast, share-issue privatization resulted in even modest performance gains in only a few cases: performance improved slightly after share-issue privatizations in Nigeria in which the government divested its entire shareholding and in the rst round in Poland. A similar conclusion can be drawn from the cross-country analysis in Otchere (this issue),
The performance of the new entrants, however, declined after a second round of liberalization. See Berle and Means (1932), Jensen and Meckling (1976), Fama and Jensen (1983), Vickers and Yarrow (1989), Stiglitz (1993), Shleifer and Vishny (2000), Lin et al. (1998), Kane (1999), Dyck (2001), and Shleifer et al. (1999). 7 See Hart (1983), Willig (1985), Yarrow (1986), Vickers and Yarrow (1989), Stiglitz (1993), and Kane (1999). 8 See Furubotn and Pejovich (1972), Yarrow (1986), Vickers and Yarrow (1989, 1991), Shleifer and Vishny (2000), Dyck (2001); and Kane (1999).
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which shows few performance gains in banks sold through share-issue privatizations.9 The strong association between share-issue privatization and large residual government ownership suggests that governments use share-issue privatization to ensure that private owners do not gain full control over the privatized bank. One notable exception to this pattern is a share-issue privatization in Australia (Otchere and Chan, 2003). The Commonwealth Bank of Australia outperformed a control group of private banks on several nancial ratios and on share price after it was privatized. This suggests that share-issue privatizations can successfully spur performance improvements, but only when the stock market and the associated market monitoring by informed investors are well developed. Hypothesis 4: Performance gains will be greater when foreign ownership is permitted. The fourth hypothesis is that bank privatization will be more successful when foreigners participate. Several studies nd that foreign owners have improved the performance of privatized non-nancial enterprises in developing countries, perhaps because they have greater experience and technological knowledge than domestic investors (Cull et al., 2002; DSouza et al., 2001; Frydman et al., 1997). But, it might also be because governments that are willing to sell to foreigners are more willing to give up control of the privatized bank indeed foreign investors might only participate when there is little risk of intervention. Foreign ownership is associated with greater performance improvement in the studies in this symposium. In the rst rounds of privatization in the Czech Republic and Mexico, when the governments prohibited or tacitly discouraged foreign ownership, performance failed to improve (Table 2). Performance did improve however after subsequent rounds in which foreigners participated. But poor performance cannot be solely ascribed to restrictions on foreign ownership. In the Czech Republic the government used share-issue privatizations and retained large shareholdings in the privatized banks. Bonin and Wachtel (2000, 2003) suggest that foreign ownership produced a more stable banking sector in the second round, at least compared with the experience after the rst round of bank privatization. The authors also point to the positive post-privatization performance of banks in Hungary, the rst country in the region to fully embrace foreign ownership. Mexicos banks were privatized unsuccessfully to local investors, renationalized after a systemic crisis, and then sold to outside investors, many of whom were foreign (Haber, this issue). The foreign investors that participated in the second round of privatization helped created a more stable and ecient banking sector, although one that has responded to the failure of Mexicos legal system to enforce property rights by lending little and charging high margins. As in the Czech Republic, the
Similarly, Boubakri et al. (this issue) nd in their cross-country analysis that economic eciency is lower when banks privatized through share-issue privatizations, although they also nd that return on equity is higher.
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poor performance of the rst privatization in Mexico cannot be wholly attributed to the prohibition on foreign ownership; competition was also curbed. Haber (this issue) also argues that political problems resulted in a awed privatization program during the rst round, a topic that is developed in the next section. Cross-country evidence also suggests that foreign investors can improve post privatization performance. In a study of 11 transition economies (Bulgaria, Czech Republic, Estonia, Croatia, Hungary, Latvia, Lithuania, Poland, Romania, Slovenia, Slovakia), Bonin et al. (2005) nd that while private banks were more ecient than state-owned banks, foreign owned banks outperformed other private banks.10 In a sample of 22 countries, Boubakri et al. (this issue) nd that economic eciency and capital adequacy were higher for banks that were privatized to foreigners. Although less widely studied, sales to foreign owners might also benet the industrial rms that are clients of the privatized banks. Djankov, Jindra and Klapper (this issue) nd that when distressed banks were sold to foreign buyers in East Asia, there was a rise in the long-run value of related rms. They argue that this is attributable to investors valuing foreign capital and know-how.11 There is also evidence that privatization can benet the foreign banks and rms involved in the transactions. In a sample of developing and developed economies, Gleason, McNulty and Pennathur (this issue) nd positive abnormal short-term returns for the foreign rms purchasing the privatized banks. They interpret these results as suggesting that investors thought that the foreign rms would benet from the performance improvements associated with privatization. Hypothesis 5: Privatization will be more successful in competitive banking sectors and will result in more competitive banking sectors. Although competition is usually benecial, theory suggests that competition in the banking sector might encourage bankers to take excessive risks, especially when regulation and supervision are weak and deposit insurance discourages monitoring by depositors (Akerlof and Romer, 1993). The emerging empirical evidence, however, strongly suggests that denying entry to new applicants is not a solution to this problem: banking sector stability and development are adversely aected by restrictions on competition (Barth et al., 2001a; Beck et al., 2003a,b). Because few of the case studies provide detailed information on competition, and because it is hard to assess how much state-owned banks compete with privately owned banks, it is harder to assess the impact of competition on post-privatization performance. The rst privatization experience in Mexico, described in detail in the
10 Participation by international institutional investors, such as the European Bank for Reconstruction and Development and the International Finance Corporation, raised returns on assets and protability even more, but did not have an additional impact on cost eciency. Bonin et al. (2005) note that almost all banks in which institutional investors were involved were foreign-owned, most with a strategic foreign investor. 11 Conversely, the Czech Republics initial failure to privatize majority control over its banks may explain the poor performance of its larger privatized rms that were the banks preferred customers (Cull et al., 2002).
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next section, however, suggests that giving buyers an oligopoly can be harmful: this episode was the only case where bank performance unambiguously declined after privatizing to strategic investors. The studies in this symposium do however show that privatization even shareissue privatization can boost competition in the banking sector. Chen, Li and Moshirian (this issue) nd that the privatization announcement of the Bank of China Hong Kong resulted in signicant losses for some rival banks and non-bank nancial institutions in Hong Kong. This suggests that shareholders in the rival institutions expected greater competition and lower returns after the Bank of China Hong Kong was privatized. The more negative responses for non-bank nancial institutions might be because the privatized bank was expected to become more involved in non-banking nancial activities after privatization. Otchere (this issue), which looks at share-issue privatizations in nine countries, also nds that rival banks suffered abnormally negative returns following privatization announcements. The results from these studies are consistent with similar results for Australia in Otchere and Chan (2003). The results from Otchere (this issue) are especially interesting given that there was little evidence of improved performance in the privatized banks.12 This suggests that privatization can have pro-competitive eects even when the privatized banks perform below market standards. 3.2. The impact on government nances The general conclusion that emerges from the studies in this symposium is that bank privatization improves protability, portfolio quality, and operating eciency, when it is done correctly. Because state banks have many, often competing, objectives (for example, to extend credit to underserved market segments) and they often lend for political reasons, this might not be surprising. Indeed, Hanson (2004) points out public banks often cannot lend to underserved market segments at market interest rates, because these rates would appear exorbitant for political reasons. The subsidies implicit in the rates that they do charge mean that portfolio quality and protability will suer at even the best-run public banks. A relevant question, then, is how big are the costs associated with those subsidies? Although the performance improvements found in the studies listed above suggest that the costs could be large, only one recent study has directly estimated the scal costs of maintaining public ownership. Based on the loss rates uncovered in detailed pre-privatization audits, Clarke and Cull (1999) nd that the cost of re-capitalizing Argentinas provincial banks was more than twice the net costs associated with privatization (i.e., the costs of removing non-performing assets from the banks balance sheets and re-capitalizing the privatized entity less the price paid for the privatized bank). The estimated median saving for provinces that privatized were equal to
12 In contrast, the pro-competitive eects in Australia (Otchere and Chan, 2003) are less surprising since the privatized bank was large and its performance improved substantially.
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about a third of their annual spending, which suggests that the gains associated with successful privatization are large. 3.3. The impact on other aspects of nancial sector development The studies in this symposium show that state-owned banks are often less ecient than similar private banks. But eciency is not the only justication for state ownership. If state-owned banks successfully correct serious market failures, state ownership might improve social welfare even when state-owned banks are less ecient than private banks.13 Theory suggests several market failures that state-owned banks might potentially be able to correct. One is that private banks might provide too little credit if banking sectors become too concentrated when banks are privately owned (Caprio and Honohan, 2001) or if imperfect information or incomplete contracts prevent private banks from lending to some borrowers (Greenwald and Stiglitz, 1986). If state-owned banks are able to overcome informational or contracting problems (i.e., if they have better information than private banks or if the states monopoly over force allows it to solve contracting problems more easily) or they do not exercise market power to the same degree that private banks would, then state-ownership might lead to greater lending and improved social welfare. Borrowers that are informationally opaque or for whom contracting is especially dicult, such as small and medium-size enterprises, might be especially vulnerable when private banks dominate. State ownership might improve access for these vulnerable borrowers even if it has only a small impact on total lending. As well as restricting access to credit, private banks might take greater risks than are socially optimal. Because the private owners do not bear the entire loss if the bank becomes insolvent, they might be willing to lend recklessly. This reckless behavior could result in more frequent bank crises (Caprio and Honohan, 2001). Even if these market failures are important, state ownership might not resolve them. Corporate governance problems might prevent state-owned banks from eciently resolving market failures or politicians might use state-owned banks to raise their own welfare (for example lending to important constituents) rather than to correct market failures. As a result, the impact on lending and stability is an empirical question. The available empirical evidence suggests that state-owned banks do not resolve these market failures. State-owned banks are associated with less nancial development, slower growth and lower productivity, especially in low income countries and countries where property rights are poorly protected (Barth et al., 2001b; La Porta et al., 2002). These is also little evidence that state-owed banks improve access to credit even for small and medium-size enterprises. In a sample of 3000 rms from over 30 countries, Clarke et al. (2001) found no statistically signicant link between state ownership and access to credit for enterprises of any size. And state banks in
13 Megginson (this issue) notes that bank privatization might also be important in hardening soft budget constraints for loss-making state-owned or privatized enterprises.
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Argentina and Chile lend less to small and medium size enterprises than other banks (Clarke et al., 2005). State-owned banks are also not associated with greater stability. Instead, they might cause instability. Barth et al. (2001b) nd that systemic banking crisis are no less common in countries where state-ownership is more common, while other studies nd state-owned banks raise the risk of bank crises and instability (Caprio and Martinez Peria, 2002; La Porta et al., 2002).
4. The political economy of bank privatization The privatization literature summarized in Section 2 shows how political incentives and institutions aect privatization. Given the intimate connection between government nance and the banking sector, it is not surprising that many studies in this symposium nd that politics played a decisive role in the nature, timing, and eventual success or failure of bank privatization. Politicians privatize rms when the political benets of privatization more revenue for spending on constituents and the benet of removing a poorly performing state-owned enterprise that has become a political liability outweigh the political costs layos, price increases, and an end to services or subsidies for favored groups (World Bank, 1995). But the political economy of privatization is more complicated than this simple argument suggests: the costs, benets and design of privatization are also aected by a countrys political institutions. Electoral laws aect politicians time horizons. The strength of political parties aect the weights that politicians put on national and local preferences. And constitutional provisions that aect who can veto privatization decisions aect the likelihood that the policy will be sustained through changes in leadership. Even so, the bank privatizations studied here suggest that there are regularities in the interplay between privatization and politics. When the scal burden of maintaining public ownership of inecient state-owned banks is high, governments are more willing to privatize. Poorly performing public banks were more likely to be privatized than better performing banks in most although not all of the countries covered in this symposium, including Argentina (Clarke and Cull, 2002), Brazil (Beck, Crivelli, and Summerhill, this issue), Pakistan (Bonaccorsi di Patti and Hardy, this issue) and Nigeria (Beck, Cull, and Jerome, this issue).14 Cross-country evidence is also consistent with the results from the case studies. Using data for 101 countries over a 20-year period, Boehmer, Nash and Netter
This does not appear to be true, however, in East Asia, where the point estimates from the estimation suggest that banks that were privatized were generally more ecient than banks that remained stateowned (Williams and Nguyen, this issue). The evidence for Eastern Europe is mixed. Bonin et al. (2005) nd that banks in Eastern Europe that remained state-owned in 1999 were less ecient than private banks in the same year although the dierence was not highly signicant. They note that this would be consistent with the hypothesis that better banks were privatized rst in transition economies. However, it would also be consistent with the hypothesis that state-owned banks are less ecient than similar private and privatized banks. Further, Bonin, Hasan and Wachtel (this issue) do not nd any evidence of a selection eect in the six Eastern European countries in their sample.
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(this issue) show that bank privatization was more likely in developing countries with poor quality banking sectors.15 Fiscal concerns also aect privatization in other ways. Fiscal transfers between national and local governments allow national governments to inuence the privatization decisions of provincial or state governments. Brazilian states that were more dependent on federal transfers and whose banks were already under federal intervention relinquished greater control during the privatization process than other states did (Beck, Crivelli, and Summerhill, this issue). The strength of opposition to privatization also aects the likelihood of privatization. In Brazil, the federal government oered several privatization options that affected the amount that state governments relinquished control over their banks (Beck, Crivelli, and Summerhill, this issue). States relinquished greater control when they were able to establish a development agency, which could assume some of the mandate of the former state bank and thus assuage political opposition.16 Similarly, in Argentina, large, overstaed banks in provinces with higher unemployment and more public sector workers were less likely to be privatized: privatization was less likely when public employees were more inuential and job losses more controversial (Clarke and Cull, 2002). Also consistent with this idea, Boehmer, Nash and Netter (this issue) nd that governments that were more accountable were more likely to privatize their banks in the low and middle-income countries in their cross-country sample. Although slightly dierent from the results for Argentina, one could argue that overstang and more public sector jobs are signs that a government is dependent on a small group of favored constituents rather than the full electorate. There is also weak evidence that party aliation or ideology might aect privatization decisions. Provinces with governors from the more scally conservative of Argentinas two major political parties (Partido Justicialista) were more likely to prin C vica Radical) vatize than those with governors from the other major party (Unio (Clarke and Cull, 2002). Similarly, right-wing governments were more likely to privatize state-owned banks than left-wing governments in the cross-country sample of low and middle-income countries in Boehmer, Nash and Netter (this issue). Neither of these results, however, were highly robust. Political factors can also aect the approach to privatization and the steps the government takes to inuence the future behavior of the privatized bank. In Argentina, provinces with high scal decits agreed to privatization contracts that allowed more layos and guaranteed a larger part of the privatized banks portfolio but received higher prices (Clarke and Cull, forthcoming). Exogenous factors also sometimes aect political decisions. The Tequila Crisis and the associated scal costs caused politicians to agree to conditions that protected fewer jobs and retained a higher share of the public banks non-performing assets in a residual entity.
Boubakri et al. (this issue) nd a similar result in their cross-country analysis. Banks were privatized were less ecient and had lower capital adequacy than other state-owned banks. 16 The development agencies were not true banks. They were unable to take deposits from the public and could only invest in priority areas dened by the state government (Beck, Crivelli, and Summerhill, this issue).
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Because political factors aect the timing of privatization and the design of privatization contracts, they can also aect post-privatization performance. Because most banks eectively stopped operating during Argentinas latest crisis, it was not possible to test directly whether specic features of the privatization contracts harmed bank performance. But there are some regularities that suggest they did. Privatized provincial banks improved protability, prot eciency and portfolio quality, while showing no improvement in cost eciency or the ratio of operating costs to assets (Berger et al., this issue). These results suggest that the contract provisions that protected workers and prohibited branch closures might have prevented the privatized banks from cutting their costs. Comparison of privatization experiences in the transition countries also provides indirect evidence that politics can aect privatization outcomes. Early in the 1990s, Hungary moved decisively to privatize its banks and allow entry by foreign banks. This strategy paid substantial dividends, allowing the country to develop a strong, stable banking system long before its neighbors did. But speed alone does not ensure success. The Czech government sold some of its ownership stakes in the four large banks that dominated the nancial system quickly through a voucher privatization program. As noted earlier, however, they also chose to retain sizable, and in some cases controlling, interests in these banks (Bonin et al., 2005; Cull et al., 2002). As a result, performance failed to improve, as the banks maintained their old links with their most inuential former clients, whom were channeled funds to prop up unproductive rms. It was not until the government cut its stakes further in the late 1990s that performance improved. Although the authorities moved more slowly in Poland than in the Czech Republic, they avoided the near-crisis situation faced by the Czechs. The decisive eect that political factors can have on the success of bank privatization were most clearly evident in the rst round of privatization in Mexico (Haber, this issue). Before 1997, Mexicos one party political system, dominated by the PRI (Partido Revolucionario Institucional), meant that there were few constraints on the governments authority and discretion. The lack of constraints had three important consequences: (i) the risk of expropriation was high; (ii) privatization policy could be distorted to serve the PRIs political needs; and (iii) mechanisms to enforce contractual rights were weak. Together these resulted in a awed privatization program. The lack of constraints on government action meant that the risk of expropriation was high.17 Potential buyers would not bid unless they were compensated for the risk of expropriation with the promise of high rates of return secured by protection from competition. It also meant that privatization policy could be distorted to meet the governments short-term political goals. Facing a scal crisis and needing to shore up political support in the face of rising political competition, the government designed a program that would maximize revenues. First, the government did not break up Mexicos highly concentrated banking system but sold the banks as is. Second, the banks were
PRI-controlled governments expropriated Mexicos banks twice in the twentieth century, in 191516 and in 1982. In addition, they had also carried out de facto expropriations through drastic increases in the money supply or draconian regulation of interest rates.
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auctioned sequentially, which led to greater competition and pushed up the bid to book ratio in every round. Third, new banks needed permission from the Secretary of the Treasury, who could decline a charter for any reason, before they could start to operate. This raised the charter value of the privatized banks. Fourth, the government failed to bring Mexicos accounting standards in line with international standards, allowing banks to substantially overstate their assets and reported rates of returns. Fifth, the government did not allow foreign banks to bid and the NAFTA agreement was structured so that only the smallest banks could be foreign owned. These features signaled to bidders that they were buying the secure oligopoly they needed to compensate them for expropriation risk, contributing to much higher than expected prices.18 On average Mexicos banks sold for over three times book value, higher than in either the United States or Western Europe countries where expropriation and default risk are lower. The new owners of the privatized banks lent aggressively and opened new branches to quickly earn high returns. The stock of lending nearly doubled in real terms between 1990 and 1994. Many of these loans were poor quality, while many others appear to have been to groups and individuals closely linked to bank owners. Non-performing loans rapidly grew from about 13.5% of loans in 1991, to 17.1% in 1994, and 52.6% in 1996.19 As bad debts accumulated the third weakness the lack of mechanisms to protect contractual rights became important. Delays and obstructions in Mexicos legal system meant that banks could not repossess collateral on their bad loans. Relational loans to family and network members were no easier to collect. In short, there were no checks on bad banking. Unlimited deposit insurance gave bankers little reason to re-create the strong networks that they had once used to monitor each others behavior. Instead the prospect of a bailout encouraged them to lend more to family and friends who planned to default (La Porta et al., 2003). Moreover, because the privatization program had allowed the new owners to pay for the banks with borrowed money, they had little of their own capital at risk, further weakening their incentives to lend prudently. Mexicos political economy had created a fragile banking system poised for collapse. The devaluation in December 1994, which led the Central Bank to raise interest rates, exposed the unsustainable situation. As the banks faltered, the 100% deposit insurance system bailed out depositors and the government took over insolvent banks. To re-capitalize the banks, the government removed all restrictions on foreign bank ownership. The second privatization in 1996 lowered operating costs and raised the capital/asset ratio from 6% to 11%. The government assumed all the bad debts, and Mexicos banks started to follow more prudential policies. But
A less charitable interpretation is that the government was tacitly permitting the new owners to attract deposits that its owners could later divert to their own accounts through loans to insiders (Haber, this issue). 19 Estimates are from Haber (this issue) and include non-performing loans omitted from ocial gures. Since Mexicos weak accounting standards underestimated the size of non-performing assets, the ocial numbers were lower. At the same time the banks were undercapitalized the capital ratio was probably only 6.5% during this period while operating costs stayed high, averaging about 7.5% per loan.
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because contracts are still dicult to enforce, banks lend little: bank lending averages only 15% of Mexicos GDP compared with 150% in the United States, 200% in Japan, and 20% in Mexico in 1991. Although politics is not the primary focus of the other studies in this symposium, they oer some examples of politics aecting privatization outcomes. For example, Beck, Cull, and Jerome (this issue) discuss the preponderance of ex-military ocials and politicians who were and are owners of Nigerian banks. They also argue that the governments multiple exchange rate regime created arbitrage opportunities for nancial institutions that had privileged access to foreign exchange, fostering a banking sector focused on rent seeking rather than nancial intermediation. Bonin, Hasan and Wachtel (this issue) describe how privatization was infeasible in Bulgaria and Romania until the late 1990s because of the unstable macroeconomic situation. By that time, the state banks had suered such large losses that substantial re-capitalization was needed to ensure investor interest.
5. Conclusions The cases studies and the cross-country analyses strongly support the conclusion that privatization improves performance and raises competition. But several policies lessen the benets: Continued state ownership, even of minority shares, harms the performance of privatized banks. Share oerings produce lower performance gains than direct sales to concentrated strategic investors in weak institutional environments. Prohibiting foreigners from participating in the privatization process reduces the gains from direct sales and share-issue privatizations. Competition alone will not secure performance improvements in privatized banks, but oligopolistic banking is likely to lead to poor outcomes for the banks and the nancial system. Foreign banks tend to be more prudent, which might result in less lending in weak regulatory environments. Although this is a reasonable response to the true hazards, it might be politically problematic. The best solution is not to sell banks to risk-loving owners, or to provide government subsidies or bail outs, but to put better safeguards against expropriation in place, protect lenders property rights better, and improve access to creditor information. Although some of these reforms might have to wait for a change in a countrys political economy, others are amenable to short-term reform. Although poor regulation lessens the gains from privatization, privatization improves performance even in poor regulatory environments. This suggests that it is better to privatize even with weak regulation, rather than await reforms that might take a long time. Because foreign banks face regulation in their home country that might curb their opportunism and encourage them to behave more prudently, it is
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especially important to allow foreigners to participate in the privatization process in poor regulatory environment. They might also lobby for regulatory improvements and legal reforms if they cannot take full advantage of regulatory or judicial lacunae. More research is needed to nd out whether this is the case. The Mexico and Argentine cases also suggest some political economy lessons. Mexicos experience illustrates that some policies that raise the price investors are willing to pay also raise the risk of crisis, especially when prudential regulations are weak and deposit insurance is in place. Seeking to boost revenues by restricting competition is short sighted. Politicians with a short time horizon might not be disposed to heed this advice; but their preference for revenues should not be encouraged by outside advisors who are also sometimes focused on short-term public decits rather than long-term eciency gains. Other steps to make privatization more politically palatable can also be risky. The restrictions on bank closures and rings in Argentina appear to have raised costs. In short, the less the political process dictates the specic features of the privatization transaction the better. Acknowledgements We would like to thank Thorsten Beck, Allen Berger, John Bonin, Jerry Caprio, Jean-Claude Cosset, Stephen Haber, Jim McNulty, Bill Megginson, Isaac Otchere, and Paul Wachtel for comments on earlier drafts. This paper has not undergone the review accorded to ocial World Bank publications. The ndings, interpretations, and conclusions expressed herein are those of the authors and do not necessarily reect the views of the International Bank for Reconstruction and Development/ The World Bank and its aliated organizations, or those of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work.
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Bank Privatization in Developing Countries 4

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Journal of Banking & Finance 29 (2005) 19051930 www.elsevier.

Bank privatization in developing countries: A summary of lessons and ndings

, Robert Cull a, Mary M. Shirley

G.R.G. Clarke et al. / Journal of Banking & Finance 29 (2005) 19051930

G.R.G. Clarke et al. / Journal of Banking & Finance 29 (2005) 19051930

See, for example, Buchanan (1969), Niskanen (1971, 1975).

G.R.G. Clarke et al. / Journal of Banking & Finance 29 (2005) 19051930

G.R.G. Clarke et al. / Journal of Banking & Finance 29 (2005) 19051930

G.R.G. Clarke et al. / Journal of Banking & Finance 29 (2005) 19051930

G.R.G. Clarke et al. / Journal of Banking & Finance 29 (2005) 19051930

Prot eciency, cost eciency Cost eciency

Net nancial margin

G.R.G. Clarke et al. / Journal of Banking & Finance 29 (2005) 19051930

G.R.G. Clarke et al. / Journal of Banking & Finance 29 (2005) 19051930

G.R.G. Clarke et al. / Journal of Banking & Finance 29 (2005) 19051930

G.R.G. Clarke et al. / Journal of Banking & Finance 29 (2005) 19051930

G.R.G. Clarke et al. / Journal of Banking & Finance 29 (2005) 19051930

G.R.G. Clarke et al. / Journal of Banking & Finance 29 (2005) 19051930

G.R.G. Clarke et al. / Journal of Banking & Finance 29 (2005) 19051930

G.R.G. Clarke et al. / Journal of Banking & Finance 29 (2005) 19051930

G.R.G. Clarke et al. / Journal of Banking & Finance 29 (2005) 19051930

G.R.G. Clarke et al. / Journal of Banking & Finance 29 (2005) 19051930

G.R.G. Clarke et al. / Journal of Banking & Finance 29 (2005) 19051930

G.R.G. Clarke et al. / Journal of Banking & Finance 29 (2005) 19051930

G.R.G. Clarke et al. / Journal of Banking & Finance 29 (2005) 19051930

G.R.G. Clarke et al. / Journal of Banking & Finance 29 (2005) 19051930

G.R.G. Clarke et al. / Journal of Banking & Finance 29 (2005) 19051930

G.R.G. Clarke et al. / Journal of Banking & Finance 29 (2005) 19051930

G.R.G. Clarke et al. / Journal of Banking & Finance 29 (2005) 19051930

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