The Future of State-Owned Financial Institutions

13. Empirical Studies

 Empirical Studies 13 S   large parts of the banking system is relatively rare in developed countries but widespread in less developed countries (table 13-1). In 1999 governments held controlling shares in banks representing more than 30 percent of banking sector assets in 25 percent of the seventy-eight less developed countries for which we have information, compared to only two (10 percent ) of the twenty developed countries for which we have data. The importance of state-owned banks in these developing countries contrasts worryingly with research findings that state ownership has pernicious effects in general and for banks in particular. A large literature on privatization, summarized in the appendix to this chapter, suggests that privatized firms generally outperform state-owned enterprises, especially in competitive sectors. Much of the literature does not deal with banks, however. A recent set of cross-country studies of bank privatization, summarized below, allows us to contrast the theoretical claims made for state ownership in the financial sector with the—negative— empirical findings. Yet although many low-income countries have begun to reduce their high levels of state involvement in banking, some have resisted, and the levels of state ownership remain high for some of the countries in table 13-1, while others are renationalizing. There is considerable regional variation in state ownership of banks and in privatization, which we also examine below. To understand the reluctance to privatize and the pressure to renationalize, we need to understand how bank privatization has progressed in individual countries  . .      13-1335-5-CH 13 12/9/04 3:40 PM Page 279  , ,   Table 13-1. Share of Banking Sector Assets in Majority State-Controlled Banks, by Country, 1999 and 2003 Country 1999 2003 Change Country 1999 2003 Change Albania 61.4 54.0 –7.4 Algeria n.a. 95.8 . . . Argentina 30.0 31.9 1.9 Armenia 2.5 0.0 –2.5 Aruba 0.0 0.0 0.0 Australia 0.0 0.0 0.0 Austria 4.1 0.0 –4.1 Bahrain 3.7 0.0 –3.7 Bangladesh 69.9 n.a. . . . Belarus 67.3 74.0 6.7 Belgium n.a. 0.0 . . . Belize n.a. 0.0 . . . Bhutan 60.0 70.0 10.0 Bolivia 0.0 0.0 0.0 BosniaHerzegovina 30.0 n.a. . . . Botswana 2.4 0.0 –2.4 Brazil 51.5 32.0 –19.5 British Virgin Islands 0.0 1.7 1.7 Bulgaria 17.6 17.6 0.0 Burundi 63.0 n.a. . . . Cambodia 16.0 7.6 –8.4 Canada 0.0 0.0 0.0 Cayman Islands 0.0 0.0 0.0 Chile 11.7 13.3 1.6 Colombia n.a. 18.3 . . . Costa Rica n.a. 62.3 . . . Côte d’Ivoire n.a. 10.0 . . . Croatia 37.0 5.0 –32.0 Cyprus 3.3 4.2 0.9 Czech Republic 19.0 3.8 –15.2 Denmark 0.0 0.0 0.0 Egypt 66.6 64.7 –1.9 El Salvador 7.0 4.2 2.8 Estonia 0.0 0.0 0.0 Fiji n.a. 1.1 . . . Finland 21.9 0.0 –21.9 Gambia 0.0 n.a. . . . Georgia 0.0 n.a. . . . Germany 42.0 42.2 0.2 Ghana 37.9 12.1 –25.8 Gibraltar 0.0 0.0 0.0 Greece 13.0 22.8 9.8 Guatemala 7.7 3.0 –4.6 Guernsey 0.0 0.0 0.0 Guinea n.a. 0.0 . . . Guyana 19.0 15.0 –4.0 Honduras 1.1 0.0 –1.1 Hungary 3.0 9.0 6.0 India 80.0 75.3 –4.7 Indonesia 44.0 n.a. . . . Israel n.a. 46.1 . . . Italy 17.0 10.0 –7.0 Jamaica 56.0 n.a. . . . Japan 1.2 0.0 –1.2 Jordan 0.0 0.0 0.0 Kazakhstan 1.1 n.a. . . . Kenya n.a. 1.1 . . . Korea 29.7 40.0 10.3 Kuwait 0.0 0.0 0.0 Kyrgyzstan 14.4 16.0 1.6 Latvia n.a. 3.2 . . . Lebanon 0.0 2.0 2.0 Lesotho 51.0 n.a. . . . Lithuania 44.0 12.2 –31.8 (continued) 13-1335-5-CH 13 12/9/04 3:40 PM Page 280    Luxembourg 5.0 5.0 0.0 Macau 1.4 0.8 –0.6 Macedonia 0.5...