Competition among financial intermediaries in Peru

We estimate the H statistic of market competition following Panzar y Rosse (1987) in the Peruvian banking industry from January 2001 to December 2013.We find that H is 0.5, which is consistent with monopolistic competition. However, in recent years the behavior of H suggests that market competition would have increased. This result is consistent with the arrival of new banks and the reduction of interest rate spreads. We then analyze market competition in the industry of municipal financial institutions, which turns out to be higher than that of the banking industry. Furthermore, in this case we find that the H statistic shows an upward trend since the beginning of the sample. However, in recent years market competition would have become more stable. This result is consistent with the behavior of interest rate spreads and is unrelated to the number of competitors.