Monopoly Power in the Peruvian Banking Industry: (1990-1995)

Abstract

The core of the thesis tries to determine the extent to which oligopolization constitutes a problem in the determination of interest rates in Peru. To do this, it uses an econometric model to test the level of competition in the Peruvian banking system. Considering the complexity of the Peruvian financial system, this project also examines other factors affecting interest rate levels. . . . It is important to understand the economic and political environment in Peru prior to the program of August 1990. The first part of the thesis provides a background of the Peruvian economy and the changes it underwent in the last five years. It describes the main stabilization and structural reforms together with the results and costs of the program. Chapter 2 describes the Peruvian financial sector, including a brief history, a list of the main players in the sector and a list of the main areas of concern regarding the Peruvian financial sector, some of which are common to emerging financial markets elsewhere. It also describes the most important interest rates in the Peruvian economy, and compares Peruvian interest rates (both nominal and real) with other Latin American countries to determine to what extent rates in Peru are higher than the region's levels. One of the main areas of concern in the Peruvian banking sector is the degree of changes to improve its situation. Chapter 6 describes and analyzes these factors which affect the high cost of credit in Peru. The chapter also describes the evolution of Peruvian banking in after 1990 and considers some factors which appeared in the past two years which are contributing to improvements in the efficiency of the Peruvian banking sector, such as direct intermediation, and foreign competition. After the analysis of the problems affecting the cost of credit in the Peruvian financial sector, some basic recommendations and conclusions are made. Besides briefly mentioning the future prospects of the Peruvian banking sector, Chapter 7 lists some of the recommendations required to reduce oligopolistic behavior, as well as some general recommendations to improve its overall efficiency. Such actions will help reduce the level of interest rates, and also increase the efficiency of the banking sector, required to achieve long-term economic stability in Peru. [From Introduction]