Banking Report ( Competitive Conditions Among the Major Portuguese Banks)

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Competitive conditions among the major Portuguese banks

Abstract Following entry into the European Community (EC) in 1986, Portugal transformed rapidly its repressed banking system with deregulation, the opening of borders, the granting of new banking licenses, and privatisation. In a more integrated banking system, one would expect a higher level of competition. This paper reports an empirical assessment of the competitive condition among the major Portuguese banks. Using Rosse-Panzar methodology H-statistic for are reported for the panel data of 17 banks for the period 2007-2012.

Introduction Following entry into the European Community (EC) in 1986, Portugal’s’ entry into the EC in 1986
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This situation, which lasted ten years, was completely reversed in the mid-1980s when the liberal Prime Minister, Cavaco Silva, undertook a profound reform of financial markets to pre-pare the country for the 1986 entry into the European Community (Borges, 1990). The banking reforms included three dimensions: entry of private firms, privatization, and liberalization. Private entry into banking was authorized on the 2nd in February 1984. The banking sector then included 12 state-owned institutions, one domestic savings bank, and three foreign banks 3 that had not been nationalised in 1975. New banking licenses were granted so that by the late 80s the banking sector had changed considerably with thirty-three banks, among which were seven newly created domestic banks and thirteen foreign institutions (Borges, 1990). Some of these banks target the retail and corporate markets, while others were merchant banks targeting the very large corporate and institutional clients. In 1989, the irreversibility of nationalisation was abolished in the course of the second revision of the 1976 Constitution. State-owned banks were gradually privatized over the period 1989–1996, with only the financial group headed by the large savings bank CGD 4 remaining in the public sector. Finally, major steps in deregulation included the lifting of credit ceilings, the end of administered interest rates, and the freedom to open branches. During the 1990–1995

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