Are Foreign Banks Better Performers Than Domestic Counterparts? Examining the Financialization Hypothesis in Mexico

Abstract

This article analyzes the relationship between “financialization” and the performance of credit institutions in Mexico over the period 1999–2013. On average, foreign banks have higher cost-to-income ratio and return on assets than domestically owned banks. Non-interest income to gross revenue positively contributes to foreign bank profits, which highlights income other than conventional banking transactions. When considering references in the literature to non-interest income as a proxy for financialization, our results imply that domestic banks are more dependent on traditional lending, such as interest-earning assets, whereas foreign banks seem to engage in greater diversification to support profitability. Overall, the banking system reveals tendencies (“financialization”) that can possibly work against credit facilitation in Mexico. © 2015, Copyright © Taylor & Francis Group, LLC.