Comparison of Performance of Korean Regional and National Banks: 1992-2004

Abstract

This paper compares the performance of regional banks and national banks in Korea for the period of 1992- 2004 by examining how the profitability of these two groups differs, identifying major determinants of profitability for each group, and explaining their similarities and differences. Two competing hypotheses, the market power hypothesis and the efficient structure hypothesis, are tested in an integrated model. The results obtained from the panel data indicate that economic growth, efficiency, and non-performing loans are significant variables in explaining profitability for both regional and national banks. On the other hand, the exchange rate and capital ratio affect bank profitability significantly for national banks, but not for regional banks, while the inflation rate and the net interest margin are important variables only for regional banks. Market concentration has no influence on bank profitability, and the market share is a significant variable for national banks, but it shows inconclusive results for regional banks.