**Table 4: Effect of political variables on restrictions in contract**

||**(1)**|(2)|(3)|(4)|_(5)_|
|---|---|---|---|---|---|
|Estimation Method<br>**________________________________________**|<br>Tobit|<br>Tobit|<br>Tobit|<br>Least<br>Squares|Least<br>Squares|
|Dependent Variable|Minimum<br>percent of<br>workers that<br>new owners<br>must keep|Percent of<br>assets<br>assumed by<br>privatized<br>bank|Percent of<br>portfolio<br>guaranteed<br>by province*|Price<br>over pre-<br>privatization<br>assets|Length of<br>service<br>contract|
|Number of Observations|15|14|14|15|15|
|Degrees of Freedom<br>.<br>.<br>..........-|10|9|9|10|10|
|Constant|0.512|0.238|0.650**|0.040|7.994**|
|-...---....-....<br>Dum y indc<br>t g P<br>.......................................... .|(1.77)<br>.<br>.<br>.<br>........|(3.54)<br> <br>0 .254<br>**.**.|(2.26)<br>-<br>.....<br>-<br>.?~V-|(1<br>182)<br>|(3.64)<br>|
|<br> <br> <br>Dummy indicating PJ Governor|<br><br> <br>1 .308'"|<br> <br> <br>0.275**|_<br> <br>_<br> <br>-0.720***|... ...<br>_-0 005_|. .....<br>-5.090**|
|**(t-s**t)<br>_(3.35||(2.32.)||(-07)|+2.93)|
|Net worth of public provincial bank|-0.910|0.480|-2.557*|<br>0.031|1.442|
|ts % of liabilities) t-stat9<br>..|3)|(|.1.)|(0<br>..|_(1)..5_|
|Lagged Provincial deficit (over revenues)|-8.037**'|0.553|1.458**|0.125**|1.605|
|(t-sta)2|(-3.72)|(1.77)|(2.53)|_(2.65)_|(0.34|
|Loans by public bank (as % of loans in province)|.1.9<br>.0.61**||-0.484|-024|10._654**_|
|.t-stat.<br>..<br>...|2.71).|(.2.28)|(0.859|_(-0.65)_|(2.91)|
|Dummy indicating before Tequila Crisis|2.132'**|0.442**|-0.285|-0.025|2.449|
|(t-stat)|(3.99)|(2.96)|(-1.37)|(-1.22)|(1.20)|
|H' (pseudo R' for Tobit regressions)|1.12|2.59|0.69|0.51|0.67|
|Excludes guarantees as percent of recovered residual assets||||||

# **C. The Effect of Contract Features on Post-Privatization Performance**

Clarke and Cull (2000b) indicates that the transition from a typical provincial bank portfolio has followed a predictable pattern - in most cases, there was a substantial reduction in credit to the financial and public sectors. The largest growth category has been personal lending. Interviews with owners of the privatized banks indicate that this lending is less risky than other types, because as bankers to the province, they assumed many payments systems responsibilities, including payments to public employees. Payments for many types of personal loans are automatically deducted from the accounts of the public employees. Growth in other, less secure, types of lending is much slower. Owners indicated that it requires time to build up a solid lending clientele among businesses, especially since many of the new owners have little experience in this area.

Signs of growing pains were, however, evident. As the equity and asset base of the new banks increased, their ROA and ROE figures tended to decline. One could argue that these were initially abnormally high due to the heavy reliance on service income and their low levels of assets and equity. Because the privatized banks are clearly going through an equilibration process, and because the post-privatization time-series is quite short (we have only one to three years of data), we have not been able to find strong associations between contract features and 29