Bancarization and Determinants of Availability of Banking Services in Argentina

The level of bankarization (access to and use of banking services) is relatively low in Argentina both in historical terms and compared with similarly developed countries. This is shown by indicators both of access to and use of banking services. This paper analyzes a unique database containing information on availability and use of regulated banking services at locality level for the 1998-2005 period. Evidence shows a sharp discrepancy among provinces, both in access to and use of formal banking services. As a result of the 2001 economic, social, and financial crisis, there was a decline in the bank loan and deposit/GDP ratio. While the use of banking services has declined, the availability of banking infrastructure has increased, especially through ATMs and mainly concentrated in already financially developed localities. The analysis of the economic determinants of availability and use of banking services indicates a significant correlation with population and socio-economic situation of the locality, district area, economic activity level and business environment of the province. These determinants depend on bank’s ownership structure (public, foreign or domestic private), thereby reflecting their different business strategies. In fact, public banks usually operate in relatively smaller localities, foreign banks mainly operate in urban centers, whereas domestic private banks largely depend on the business environment of provinces. Finally, a Bayesian econometric approach shows that the use of banking services is characterized by spatial dependence, which suggests the importance of extending access to bank financial services locally in order to foster bankarization.