Bank Market Competition Research Articles

Methodological Aspects of Elaborating Marketing Strategy of Innovation Bank Products and Services

Today the key factor of influencing banking sector is the development of information systems and overall strategy of economy digitalization as its consequence. On today’s competitive banking market we can observe the necessity to elaborate and promote approaches to banking product and service marketing that are meant to provide finance stability of banking business and orientation of marketing innovation bank functioning not only to their opportunities but also to market needs. In spite of a big number of publications dealing with this issue, academic research should be developed further. In research by Russian scientists there are actually no developments dealing with the problem of finding structural components for elaborating marketing strategy of banking products and services. Insufficient attention was paid to approaches of defining the essence of banking product and service marketing. The problem of assessing the level of the impact of banking innovation marketing on competitive positions and finance stability of banks has not been settled yet. The article showed components necessary to elaborate strategy of banking product and service marketing, among which the author underlined their characteristics depending on the model of commercialization, sub-system of their implementation process and interconnection between the chosen marketing strategy and classification features of banking innovation. The author designed a structural and logical scheme of elaborating strategy of baking product and servicer marketing and formulated its definition.

Nghiên cứu tác động của sức mạnh thị trường tới sự ổn định của các ngân hàng thương mại Việt Nam

This paper investigates the impact of market power on the stability of Vietnamese commercial banks using a quarterly unbalanced panel data set of 22 commercial banks in the period from Q2:2015 to Q3:2023, combined with panel data analysis models. Research results show that market power has a negative impact on the stability of Vietnamese commercial banks, implying that a more competitive banking market will have higher stability. In addition, a higher non-performing loan ratio, loan-to-deposit ratio and inflation also make banks less stable, as these factors increase bankruptcy risk, liquidity risk, and credit risk. On that basis, this paper proposes some policy recommendations to improve the stability of Vietnamese commercial banks, including creating a favorable banking business environment, encouraging diversification and innovation in the banking market (such as supporting small banks to increase capital or establish FinTech in a controlled manner). In addition, commercial banks need to proactively manage their internal factors such as credit risk and loan to deposit ratio to ensure stability.

Promoting Digital Technologies to Enhance Human Resource Progress in Banking

The banking industry has been using digital technologies for several decades to improve its operations and customer service. Digital transformation has marked the competitive banking market worldwide. It has been prominent in hardware and software banks use to attract and keep customers, pursuing the recent trends of digital advancement. Strategic human resource management is an area in the Albanian banks’ activity that can increase the use of digital tools to benefit from their remarkable attributes. The bank workforce should be equipped with the necessary skills, knowledge, and competencies for utilizing the new technologies and processes. Training and development of employees are key to ensuring they can contribute to the achievement of banks strategic objectives. This study points out the potential of digital tools to drive the improvements of employees in terms of performance, motivation, job satisfaction, and customer service. The role of learning management systems for employees’ training in banks is given particular attention. The method applied is a combination of the desk study with a field survey carried out in the banking sector in Albania. It reveals a positive relationship between the use of appropriate digital tools for employees’ learning and development process and their commitment to work. The survey indicates the employees’ appreciation for the organizations that care about their workforce development, which contributes to a successful implementation of their competitive strategy in the Albanian market. Increased use of digital technologies for human resource development in banks could support the digital advancement of the whole economy.

Competition and Stability in the European Union Banking Sector

This paper empirically tests the two competing hypotheses regarding the relationship between competition and stability: the competition-fragility hypothesis and the competition-stability hypothesis. The banking sector stability is proxied with the estimated Z-score, which provides a measure of overall bank stability. Two different measures are used to represent bank competition: the Herfindahl–Hirschman Index (a specific measure of market concentration) and the Boone indicator (which measures competition from an efficiency perspective). Using data from the Moody’s Analytics BankFocus database and the World Bank Global Financial Development database, the paper applies panel estimations to a relatively large panel, including 784 relevant banks from all 27 European Union countries, between 2006 and 2021. The main findings overall confirm the validity of the competition-fragility hypothesis. Moreover, the results obtained for two specific European Union countries, Germany and France, highlight some specific differences, particularly regarding the effects of bank market concentration and the responses to the crises that affected the European Union banking institutions over the considered period. The findings of this paper reinforce the relevance of the policy maker’s role and indicate, for example, that bank market competition in the European Union is probably already sufficiently high and should not be reinforced, as overall, the increase in bank competition seems detrimental to the stability of European Union banking institutions.

Investigating customer churn in banking: a machine learning approach and visualization app for data science and management

Customer attrition in the banking industry occurs when consumers quit using the goods and services offered by the bank for some time and, after that, end their connection with the bank. Therefore, customer retention is essential in today’s extremely competitive banking market. Additionally, having a solid customer base helps attract new consumers by fostering confidence and a referral from a current clientele. These factors make reducing client attrition a crucial step that banks must pursue. In our research, we aim to examine bank data and forecast which users will most likely discontinue using the bank’s services and become paying customers. We use various machine learning algorithms to analyze the data and show comparative analysis on different evaluation metrics. In addition, we developed a Data Visualization RShiny app for data science and management regarding customer churn analysis. Analyzing this data will help the bank indicate the trend and then try to retain customers on the verge of attrition.

The Influence of Bank Performance, Market Condition and Economic Growth on Non-Performing Loans

The paper contributes to the literature on the determinants of non-performing loans by applying panel fixed effects and dynamic Generalised Method of Moments (GMM) estimations to a relatively large panel of 80 countries over the period 1999-2017. The paper considers three categories of explanatory variables; bank-level, industry-level, and macroeconomic-level. The bank-level variables highlight the relevance of bank profitability and efficiency to avoid non-performing loans. The industry-level variables, for the entire period and particularly after the onset of the Global Financial Crisis (years 2009-2017), show that bank market concentration promoted non-performing loans, while bank market competition and bank stability did not contribute to increasing non-performing loans. The macroeconomic-level variable, real per capita gross domestic product, provides very convincing evidence that promoting economic growth looks like the best way to avoid non-performing loans. Analyses with different sub-samples show that the determinants of non-performing loans are not particularly dependent on the level of income of the country.

The role of the procurement commitment contract in a low-carbon supply chain with a capital-constrained supplier

We study a supply chain consisting of a retailer and a capital-constrained supplier that produces a single product with low-carbon attributes. To cater for the carbon trading market, i.e., in the cap-and-trade regulation setting, and consumers' low-carbon preference, the supplier may invest in carbon emissions reduction. Capital-constrained, the supplier raises funds from a competitive banking market to carry out its production, carbon abatement investment, and even insufficient emissions permits purchase. We study the impacts of the procurement commitment (PC) contract provided by the retailer on the economic and environmental performance of the supply chain. We first develop a Stackelberg game between the retailer and supplier, where the former as the leader decides the PC amount, and the latter as the follower chooses the output and carbon abatement level. We derive the equilibrium outcomes of the game under the scenarios without and with emissions-dependent demand. We find that the retailer will provide the PC contract only when the supplier's gross margin is less than a certain threshold, under which Pareto-improvement of the supply chain can be achieved. However, providing the PC contract will hamper the carbon abatement performance of the supply chain, in terms of the total carbon abatement or abatement per unit product. We further extend the pure PC contract to the cases with credit limit or carbon abatement target, respectively. We find that if the bank sets a credit limit for the supplier based on the value of the retailer's PC contract, the retailer will always provide the contract to enhance the supplier's financing and production capacity, regardless of the supplier's gross margin, and such a contract exhibits a similar economic and environmental role as that in the case with no credit limit. However, if the retailer imposes a specified carbon abatement target on the supplier as a precondition of providing the PC contract, the contract may achieve coordinated improvement of the economic and environmental benefits of the supply chain. We also extend the problem to an “investment-then-contract” case, in which the supplier chooses the carbon abatement level before both parties make the quantity-related decisions, and we find that the retailer's PC contract will not change the supplier's carbon abatement decisions in both cases without and with consumers' green preference, and it only functions to stimulate the supplier's output under certain circumstances.

Economic sanctions and global banking flows: The moderating roles of financial market properties and institutional quality

This paper investigates the effects of economic sanctions (ES) on global banking flows (GBF) using 4022 pairs of 207 countries during the period 1995­2018. We use a structural gravity model combined with the rich Global Sanction DataBase introduced by Felbermayr et al. ES include various forms of sanction, including arms, military, trade, financial, travel, and other sanctions, whereas GBF reflect cross-border lending. Our empirical results show a negative association between ES and GBF. The heterogeneous effects of ES on GBF depend on the types of sanctions. Furthermore, both properties of financial markets and the institutional quality of the target country play a decisive role in moderating the ES-GBF nexus. Specifically, the consequences of ES become more severe when target countries feature a high level of financial market development, more open financial markets, poor credit information sharing, a more competitive banking market, and a high degree of financial openness, while better institutional quality limits the adverse impact of sanctions.

How Does Market Competition Affect Shareholder Voting? Evidence from Branching Deregulation in the U.S. Banking Market

Exploiting interstate branching deregulations during 1994–2005 as exogenous shocks to banking market competition, we examine the impact of increased market competition on shareholder voting in the U.S. banking industry. Voting is one of the primary mechanisms through which shareholders participate in corporate governance and “voice” their opinions to company management, yet little is known about how external market environments shape shareholder voting behavior. Using a difference-in-differences design, and a sample of 596 banks (17,783 bank-year proposals), we are the first to provide large-sample, systematic evidence that the intensification of market competition leads to an increase in rates of disapproval for management proposals. We further document that the relation between the two is more pronounced among states with higher degrees of deregulation and weaker levels of pre-deregulation competition. Overall, our findings are consistent with the notion that increased competition among U.S. banks induces more shareholders to vote against management proposals.

Capital regulation, market power and bank risk-taking in the MENA region: New evidence for Islamic and conventional banks

This paper investigates the impact of capital requirements and market power on the risk of financial institutions in the Middle East and North Africa (MENA) region. We test the hypothesis that capital requirements have a significant effect on risk behavior of both Islamic and conventional banks in the MENA region. We also investigate the moderating effect of market power on the relationship between capital requirements and bank risk. Our analysis indicates that capital ratio has a strong positive impact on the credit risk of conventional banks, whereas this effect is insignificant in the sample of Islamic banks. For the conventional banking sector, the increase in the capitalization level imposed by the regulators is negatively linked to the credit risk level only for banks with high market power. Regarding the IBs behavior, that the relationship between capital ratio and credit risk is not moderated by market competitive conditions. This means that Islamic banks are less sensitive to the conditions of market competition in the MENA countries but strongly depend on the regulatory authorities’ initiatives. Our findings inform the policymakers and regulators concerned with improving the banking sector’s stability in the MENA region to set their policy differently depending on the level of banking market competition.

Interest rate shocks, competition and bank liquidity creation

We study the effects of interest rate shocks (IRS) on banks’ liquidity creation. A unique supervisory data set from the Deutsche Bundesbank allows identifying banks’ liquidity creation for the real economy and the effects of banking market competition. Here, we employ a novel approach to account for IRS that are both unexpected and effective for a bank’s business model. We find that higher individual pricing power in the market lowers banks’ liquidity creation, which is in line with theory that monopolistic firms undersupply the market when utilizing their high pricing power in the bank competition–liquidity creation nexus. While positive IRS per se lead to an increase in bank liquidity creation, we find that a high bank-individual pricing power curbs this impact on liquidity creation significantly. Moreover, we show that monetary policy was most effective during the global financial crisis and for well-capitalized banks, whereas periods of low interest rates are characterized by the persistent increase in liability-side liquidity creation.

Competition, concentration and default-risk in the Indian banking industry

PurposeThe study investigates the impact of bank market competition and concentration on the bank default-risk using the data for 36 Indian scheduled commercial banks from 1999 to 2017.Design/methodology/approachThe study adopts the dynamic panel generalised method of moments (GMM) and panel quantile models to obtain the results.FindingsBank market competition and concentration foster financial fragility in terms of high default-risk. This implies that concentration does not mean a lack of competition in the Indian banking market. The findings from the quantile model reveal that the stated relationships become weaker under the tails of the conditional distribution of the risk measure.Research limitations/implicationsThe authors recommend that non-structural measures (Lerner index and H-statistic) should be preferred over the concentration measures (HHI and CR3) to characterise bank market competition in India. Based on the evidence of persistence in the bank risk variable, from the methodological perspective, dynamic panel data models are better choices for bank-level analyses compared to the conventional panel data models.Practical implicationsTo improve the health of banks, price competition should be reduced among them. This objective should be achieved by creating new avenues to increase the banks' non-interest income parallelly with the consolidation of the market.riginality/valueFirst, it tries to answer whether concentration implies a lack of competition for a banking system like India. Second, the quantile regression technique enables us to understand the varying nature of the impact of market competition on bank risk at different locations on the latter's conditional distribution. Earlier studies have not looked at these aspects in the Indian context.

Islamic banks' merger: the case of Bank Syariah Indonesia

This paper provides a case study of the Bank Syariah Indonesia (BSI) that has been formally created on the 1st of February 2021 through mergers of three State-owned Islamic banks in Indonesia. This paper is a descriptive case study focusing on why the merger was initiated, what happens to the Indonesian Islamic banking industry after mergers, and its implication on market competition and stock prices. We use data of total assets of 34 Islamic banks in Indonesia and the weekly stock price of 4 listed Islamic banks for 18 months. By computing concentration ratio and Herfindahl index, we find that the Indonesian Islamic banking market competition decreases substantially after the merger. We also find that although the merger of BSI previously brings a positive reaction in the stock markets, the stock price of BSI consistently decreased after mergers.

Bank size, competition, and efficiency: a post-GFC assessment of Australia and New Zealand

This paper investigates the impact of the global financial crisis (GFC) on banking market structure and efficiency in both countries, and the relationship of bank size and market competition with cost and profit efficiencies. Efficiencies of 11 Australian and New Zealand large commercial banks are estimated with a one-stage stochastic frontier approach (SFA) for the period 2003–2017. The Herfindahl- Hirschman Index (HHI) and Lerner index are used as proxies for market competition along with eight banking environment variables. Cost and profit efficiencies significantly declined during 2008 and 2009, but the impact of the GFC persisted longer in New Zealand than in Australia. The level of risk and competition has reduced, and bank size increased in the post-GFC period. Bank size is found to be positively associated with bank efficiency. Market competition negatively influenced cost and profit efficiencies during the study period, especially after the GFC.

Are competition and performance friends or foes? Evidence from the Middle East banking sector

PurposeThis paper aims to investigate the impact of banking market competition on banks’ profitability and banks’ risk using a sample of six countries from the Middle East from 2006 to 2017.Design/methodology/approachThis paper uses the system generalized method of moments estimator to tackle potential omitted variable bias, endogeneity and simultaneity issues.FindingsAfter controlling for bank market and country-specific characteristics, this study reports strong and robust evidence that competition in the banking market is conducive to lower financial performance. This research further finds that intense banking competition leads to lower profitability and increased risk regardless of bank type. As the relationship is not different for Islamic banks, one can argue that activities of Islamic banks are based on the basic traditional banking operations and products, and banks need to diversify their business activities to reduce failure risk and preserve the banking sector’s stability.Originality/valueThis paper tries to bridge the gap by studying the impact of competition on bank performance in high-income dual banking Gulf Cooperation Council (GCC) economies. Earlier studies have either covered all the dual banking economies or the Middle East and North African region. The authors suggest that the GCC banking market is required to be studied separately because of its idiosyncrasies. Second, unlike earlier studies, the authors have not only examined the impact of competition on bank return but also on bank risk.

Nurturing regional innovation: the effects of bank competition in the USA

Whilst corporate innovation is one of the key drivers of regional economic growth, question remains over how regional corporate activities are affected by local banking market structure. By attaching regional corporate innovation activities to a market power hypothesis, this paper examines (1) if regional innovation activities would benefit from the improved banking market competition and (2) the variation of banking market competition effects on innovation outputs over unique regional characteristics, such as state-level R&D intensity and distribution of innovation activities. Using patent and citation data and local bank data from 51 states in U.S between 1992 and 2004, we show that improved local banking market competition increases both the quantity (patents) and quality (citations) of regional innovation outputs. It is also found that such a favourable effect on regional innovation is especially stronger for those states with low R&D intensity and those with more concentrated innovation activities.

Nurturing regional innovation: the effects of bank competition in the USA

Whilst corporate innovation is one of the key drivers of regional economic growth, question remains over how regional corporate activities are affected by local banking market structure. By attaching regional corporate innovation activities to a market power hypothesis, this paper examines: 1) if regional innovation activities would benefit from the improved banking market competition; 2) the variation of banking market competition effects on innovation outputs over unique regional characteristics, such as state-level R&D intensity and distribution of innovation activities. Using patent and citation data and local bank data from 51 states in the USA between 1992 and 2004, we show that improved local banking market competition increases both the quantity (patents) and quality (citations) of regional innovation outputs. It is also found that such a favourable effect on regional innovation is especially stronger for those states with low R&D intensity and those with more concentrated innovation activities.

What is the effect of banking concentration and competition on financial development? An international assessment

PurposeThis paper analyzes the effect of the banking market (concentration and competition) on financial development.Design/methodology/approachIn order to estimate the effects of banking concentration and competition on financial development, we conducted an empirical analysis using the System Generalized Method of Moments (S-GMM) through a dynamic panel data model.FindingsThe main results suggest that concentration and competition affect financial development. In particular, an increase in bank concentration may inhibit the country's financial development, due to the lack of competition. Our results do not confirm the controversy between concentration and competition, suggesting that concerning financial development, concentration is the reverse of competition.Practical implicationsThe results of this study add a new perspective on banking market power: a financial system concentrated or uncompetitive constrains financial development.Originality/valueThe literature that combines the investigation of the effects of banking market structure (concentration) and banking market conduct (competition) on financial development is scarce. Although a concentrated banking sector can reduce competition through barriers to new entrants (which could expand financial services offer), it is also true that a concentrated banking sector can be competitive. In order to avoid the controversy, our paper chooses to look into a comprehensive approach considering independent measures of bank concentration and bank competition, which together refer to the banking framework.

The evolution and heterogeneity of credit procyclicality in Central and Eastern Europe

AbstractThis article presents empirical estimates of bank credit procyclicality for a sample of 11 Central and Eastern European countries (CEECs) for the period 2000Q1–2016Q4. In the first step, we estimate a traditional‐type panel vector autoregressive (VAR) model and analyse the evolution of credit procyclicality in the CEECs by comparing the impulse response functions for different business cycle periods. The results confirm the existence of credit procyclicality in the CEECs and show that procyclicality is higher during boom periods. Furthermore, we observe the heterogeneity of credit procyclicality in the different countries in our sample. To explain the cross‐country heterogeneity in credit procyclicality we construct an interacted panel VAR model and analyse whether bank‐level competition, proxied by the aggregate Lerner index, constitutes a driving force of credit procyclicality. Our findings indicate that bank competition affects credit procyclicality and explains the differences in credit dynamics across the CEECs. Specifically, we show that the reaction of credit to a gross domestic product shock is on average higher in a less competitive banking market.

Bank development, competition, and entrepreneurship: International evidence

This paper uses a panel database for 84 countries over the 2002–2017 period to analyze the importance of bank development and bank market competition for enhancing new business creation. The results show that less bank market competition facilitates the creation of new businesses. Bank development, however, is not associated with a higher entry rate of new businesses. Less bank market competition and lending relationships appear to be a main channel for reducing the cost of debt and overcoming traditional adverse selection and moral hazard problems between banks and newly created firms. The global financial crisis did not modify the positive effect of less bank market competition on new firm registration. The results are robust to controls for equity market development, the ability of banks to hold equity positions in nonfinancial firms, the costs and days required for starting a business, and any other omitted time-invariant variables at country level.