How Have Consumers Fared in Bank Privatization? International Evidence

Abstract

We examine whether consumers have benefited from bank privatization worldwide and find that bank spreads are significantly higher in the post privatization period than in the pre-privatization period, suggesting that bank customers have not benefited from bank privatization. However, we observe that the increase in net interest margin occurred in the developed countries whereas consumers in developing countries have benefited from reduced bank margins following privatization. Despite the reduction in bank margins, consumers in developing countries still pay more for banking services than their counterparts in the developed world. Since developed countries banking environment is more competitive, lack of competition does not seem to explain our findings. Rather, the results appear to support the conjecture that margins were perhaps kept artificially low in the pre-privatization period and that the higher margins in the developed countries reflect market conditions.