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 transformed the then depressed banking system, a combination of deregulation, opening of new borders, new banking licenses, and privatisation. This paper reports an empirical assessment of the competitive condition among the major Portuguese banks. Using Rosse-Panzar methodology The present paper is structured as follows. Section 2, an historic perspective of Portuguese banking is summarized briefly. In Section 3, the sample of banks with data on inputs and outputs is presented. The sample retained for the study covers more than ninety percent of the industry. In Section 4, Rosse-Panzar methodology used to evaluate competitive condition is reviewed. Portuguese banks The backbone of today’s Portuguese banking system is relatively new, up until 1975 Portuguese banks were nationalised. Under the military coup governed by Conselho da Revolucao) The 1976 Constitution of the Portuguese Republic established the irreversibility of nationalization and barred entry of private firms into banking. The banking system was then very much repressed by very strict regulations in terms of entry, opening of branches,