Assessing nature of competition in banking sector of Pakistan

Abstract

This study examines the nature of competition in banking sector of Pakistan and assesses whether the banking sector is in long-run equilibrium or not. The study uses annual panel data for a sample of 30 banks, over the period 2007–2015 by employing Rosse and Panzar (1977) methodology. The findings show that banking sector of Pakistan is operating under characteristics of monopolistic competition. The findings further show that the equilibrium hypothesis is rejected for the banking sector over the period of analysis. The current study is expected to benefit policymakers, banking sector itself and the country's central bank. The findings confirm that massive deregulations and financial liberalization has contributed positively and has improved competitive condition of the banking sector that is expected to improve further in the future.