Competition In Banking Sector Research Articles

Does government spending cointegrate with bank lending? Evidence from Eurozone panel data

PurposeOur purpose is the examination of the effects of fiscal policy on private lending for the Eurozone countries. The emphasis is on the identification of the time path of government spending and bank lending.Design/methodology/approachFiscal policy is a main factor of macroeconomic stability for the euro area economy. This paper, investigates the impact of government spending on bank lending. For this reason, we present a dynamic theoretical model with a perfectly competitive banking sector, estimated using panel cointegration for the Eurozone countries from 2000Q1 to 2022Q2.FindingsOur findings highlight that, in the long run, consistent management of government spending can have a beneficial multiplicative impact on bank lending for housing and business reasons. This finding is stronger in magnitude for business versus housing lending. The high level of homogeneity of our results across Eurozone countries has positive implications for a common fiscal policy in the future. Finally, authorities should know that policy adjustments are quicker in housing lending when compared to business lending.Originality/valueIn this paper, we contribute to the existing literature, concentrating on the investigation of any existence of long-run and short-run relationships between government spending and bank lending. Additionally, our analysis allows one to investigate the contribution of each Eurozone member state in the short-run and long-run model’s dynamics, providing significant outcomes for the implementation of economic policy and the need for fiscal discipline in the Eurozone.

The Effects of Working Capital Management on Firms’ Efficiency: Case of Turkish and Zimbabwean Commercial Banks.

This research studies management of working capital and its impact on commercial bank efficiency in Zimbabwe and Turkey. The study examined the financial statements of 10 banks from each country between 2009 and 2022. The research evaluated performance of banks using return on asset (ROA) as well as return on equity (ROE) as efficiency indicators. Working capital was assessed through the current ratio, current ratio, and total cash ratio, while bank size and leverage were considered as control variables. Correlation analysis, estimation equations, and regression models were used to examine the data, which included pooled cross-sectional and time series data, using SPSS (version 20.0). The data demonstrated a favourable and substantial association between ROE and the current ratio, demonstrating that adequate management of working capital has a beneficial impact on the banks’ profitability. A negative correlation, in contrast, between current ratio and ROE was noted, implying a balance of profitability and liquidity. Furthermore, no statistically significant association was seen between cash payment ability, total cash ratio, and ROA. However, a significant negative correlation was identified between the current ratio and ROA. Comparing the two countries, Turkish banks demonstrate superior liquidity management, potentially attributed to their adherence to the Basel III reform guidelines. The study recommends that Zimbabwean banks adopt similar measures to enhance their competitiveness in the international banking sector. In conclusion, the research emphasises the significance of good management of working capital in maximising bank efficiency. The findings provide valuable insights for policymakers and practitioners in the banking industry, urging them to implement liquidity management strategies for sustained success.

Конкуренция в банковском секторе: «дорожная карта» для финансовой стабильности?

Конкуренция в банковском секторе: «дорожная карта» для финансовой стабильности?

Talent Management Strategies: A Panacea to Employee Turnover in Commercial Banks in Abia State, Nigeria.

Effective personnel management is increasingly acknowledged as a strategic method to handle the difficulty issue of employee retention which has been viewed as a major concern for firms in the competitive banking sector. Previous research has focused on specific tactics and how they can improve staff retention, yet turnover in the banking industry in Abia state, Nigeria, keeps rising. Determining the effect of talent management methods on employee retention in the setting of commercial banks in Abia State, Nigeria, is the purpose of this study. This is anticipated to fill in the knowledge gaps on the difficulties in talent management methods for commercial banks in Nigeria’s Abia state. This study aims to investigate the effects of talent management techniques on employee retention in the commercial banking sector in Abia State, including sourcing/recruitment, training/development, and reward/recognition. The study uses a qualitative method of data gathering through interviews with HR department workers of the chosen banks, using an interpretivist philosophy and inductive methodology. The data analysis includes thematic analysis to examine the effects of talent management strategies on employee retention. A strategy that can assist in overcoming the difficulties in the aforementioned talent management strategies is succession planning. The study finds that reward and recognition programs, comprehensive training and development programs that are seen to create opportunities for career growth and advancement, and effective recruitment practices that are in line with the bank’s culture and values are key strategies for reducing employee turnover. Thus, the study’s advice is consistent with its findings that succession planning is a talent management strategy that can combine other approaches to create a comprehensive approach to talent management, enhancing both competitive advantage and employee retention.

A frontier-based parametric framework for exploring the competition–efficiency nexus in commercial banking: insights from an emerging economy

PurposeThe present study assesses the commercial bank profit efficiency and its relationship to banking sector competition in a rapidly growing emerging economy, India from 2009 to 2019 using stochastic frontier analysis (SFA).Design/methodology/approachLerner indices, conventional and efficiency-adjusted, quantify competition. Two SFA models are employed to calculate alternative profit efficiency (inefficiency) scores: the two-step time-decay approach proposed by Battese and Coelli (1992) and the recently developed single-step pairwise difference estimator (PDE) by Belotti and Ilardi (2018). In the first step of the BC92 framework, profit inefficiency is calculated, and in the second step, Tobit and Fractional Regression Model (FRM) are utilized to evaluate profit inefficiency correlates. PDE concurrently solves the frontier and inefficiency equations using the maximum likelihood process.FindingsThe results suggest that foreign banks are less profit efficient than domestic equivalents, supporting the “home-field advantage” hypothesis in India. Further, increasing competition drives bank managers to make riskier lending and investment choices, decreasing bank profit efficiency. However, this effect varies depending on bank ownership and size.Originality/valueLiterature on the competition bank efficiency link is conspicuously scant, with a focus on technical and cost efficiency. Less is known regarding the influence of competition on bank profit efficiency. The article is one of the first to examine commercial bank profit efficiency and its relationship to banking sector competition. Additionally, the study work represents one of the first applications of the FRM presented by Papke and Wooldridge (1996) and the PDE provided by Belotti and Ilardi (2018).

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.

Fintech adoption, the regulatory environment and bank stability: An empirical investigation from GCC economies

The study analyzes the impact of fintech adoption on the banking sector's stability in GCC countries from 2010 to 2022. The study also considers the role of fintech regulations in this framework. We construct an index of fintech adoption by banks by considering several factors such as banks' digital presence, mobile banking capabilities, support for open APIs, fintech partnerships, digital payment solutions, automation and artificial intelligence integration, innovation initiatives, user experience focus and embracing new technologies. The regulatory environment is measured through the existence or introduction of fintech-related regulations such as the regulatory sandbox. The findings imply that fintech adoption has reduced banks' stability in GCC. The fintech-stability relationship varies over various bank-specific and country-specific variables. For instance, large and well-capitalized banks are less likely to experience adverse effects of fintech adoption. Moreover, the negative impact of fintech on financial stability is lower for Islamic, foreign and government banks. In addition, banks operating in well-developed and more competitive banking sectors experience lower financial instability when adopting fintech innovation. We confirm these findings with an alternative indicator of fintech adoption. The study also discusses essential policy implications for the sample countries.

Economic growth, inflation, and banking sector competition

Empirical findings suggest that inflation and economic growth are positively correlated when inflation is initially low. However, once inflation rises above a certain threshold level, the correlation becomes negative. Furthermore, the threshold is higher for developing than for advanced economies. Why does the inflation threshold vary across countries? Using an endogenous growth model, this paper demonstrates that the inflation-growth relationship is influenced by regulatory restrictions on banks’ balance sheets and the degree of competition in the banking sector. For example, in an economy with high restrictions on banks’ activities, the threshold inflation rate is high if the banking system is not competitive and hence not deep enough (i.e., banks are holding too much liquidity). As the financial sector around the world is becoming more concentrated and subject to tighter regulation, the analysis calls for the need for coordination between monetary and macroprudential policymakers.

Banking sector competition and firms’ financial constraints: Firm-Level evidence from developing economies

We explore the link between bank competition and financing constraints of small and medium-sized enterprises (SMEs) for a sample of 48 developing economies. We incorporate several firm-specific characteristics such as size, age, tangibility, profitability, growth potential, innovativeness, industry, internationalization, and ownership structure. In addition, we con-sider the role of financial development, credit information availability, credit cycle, business cycle, and macroprudential policies. We calculate the credit-constrained status of SMEs using information from the World Bank’s Enterprise Survey (WBES). The findings suggest that the likelihood of a business being credit-constrained is smaller in a competitive banking environment. We get consistent results when employing various indicators of credit constraints and banking competition. The availability of credit information reduces the information asymmetry and lowers the discouraging role of banking market power. Furthermore, banking sector development supports the competition in decreasing SMEs’ financing obstacles. In addition, economies with more financial freedom, effective enforcement of legal rights, and institutional quality support businesses in gaining more access to external financing. Policy implications of the findings are discussed.

Bank competition and corporate risk: Firm‐level evidence from BRIC economies

AbstractThe study analyzes the potential influence of bank competition on corporate risk‐taking. The study also analyzes the interactive role of firms' dependence on external finance in this framework. We gauge corporate risk through idiosyncratic risk (market‐based measure) and earnings volatility (accounting‐based measure). Analysing firm‐level data for Brazil, Russia, India, and China (BRIC) from 1999 to 2018 through a ‘two‐step dynamic panel system GMM,’ we discover that more (less) competitive (concentrated) banking sectors assist in reducing corporate risk taking. The risk‐reduction effect is specifically stronger for financially dependent and small‐sized firms. The findings remain unchanged when different proxies of financial dependency, banking sector competitiveness, and risk are employed. Further analysis of the ‘transmission mechanism’—the channel by which the extent of banking sector competitiveness influences corporate risk—uncovers that the competitive banking sectors increase firms' access to finance and allow them to operate with lesser financing obstacles.

Strategic Factors Influencing Banking Sector Competitiveness in Rwanda. A Case Study of Bank of Kigali, Rwanda

Several financial institutions in Rwanda have closed as a result of the current economic crisis, making it difficult to conduct this research. A country's economic well-being particularly that of Rwanda, hinges on the strength of its banking system. The purpose of this study is to investigate the strategic factors that contribute to the competitiveness of the banking industry in Rwanda. These factors include strategic product accessibility, strategic customer relationship marketing, strategic leadership, and strategic technology adoption. A cross-sectional survey design was used as the research methodology for this study. Bank of Kigali's current staff of 150 employees served as the sample population. Respondents were requested to fill out questionnaires and interview schedules, which provided the bulk of the study's data. These were the study's primary data collection points. Secondary sources, such as the National Bank of Rwanda's yearly reports, were also consulted for this study. Analysis of the collected data was carried out using SPSS. Thematic analysis was used to examine qualitative data, and the findings were presented in narrative format together with direct quotations from respondents. The study results reveals that It is evident that holding strategic products accessibility, strategic customer relationship marketing, strategic leadership and strategic technology adoption to a constant zero, banking sector competitiveness in Rwanda would be at 0.421. In Addition, any unit increase on strategic products accessibility would increase banking sector competitiveness in Rwanda by a factor of 0.224. Any unit increase in strategic customer relationship marketing would increase banking sector competitiveness in Rwanda by a factor of 0.222. Any unit increase in strategic leadership would increase banking sector competitiveness in Rwanda by a factor of 0.359. Lastly any unit in strategic technology adoption would increase in banking sector competitiveness in Rwanda by a factor of 0.304. Therefore, commercial banks are encouraged to consistently work to improve their strategic leadership, planning, creativity, technological proficiency, and human resource competence. This may be achieved by effective and proactive leadership, strategic planning, the use of cutting-edge technology, an innovative spirit, and strong adherence to employee training and development. To guarantee the commercial banks' long-term existence and stakeholder satisfaction, more study is needed on how the National Bank of Rwanda may improve its oversight and regulatory role. Keywords: Strategic Factors, Banking Sector, Competitiveness, Performance, strategic product accessibility, strategic customer relationship marketing, strategic leadership, and strategic technology adoption

Impact of banking sector competition on emerging market banks’ safety and soundness – A study on Indian Banks

The literature is unsettled on the simultaneous existence of Competition-Stability and Competition-Fragility phenomena in the banking system. Our study has extended the debate where we have incorporated accounting-based information along with 2-SLS system equation modeling to further explore linkages between competition, systemic risk, and stability prevailing in the Indian banking system. The study revealed that for Indian banks competition and systemic risk are inversely related. Systemic risk build-up occurs during the business growth cycle, and it spillovers onto the banking system during the economic down-cycle. The article finds that while a healthy competition would support the overall stability of banks, a fierce competition exerts competitive pressure on the banking system, and hence it negatively contributes to the bank’s stability. It has supported the financial fragility hypothesis and envisages that increased capital restricts competition, and aggressive loan creation increases fragility.

Strategic Service Quality Management for India's Banking Sector

Every service industry that wants to maintain its competitive edge must prioritize the happiness of its customers. Competition in India's banking sector is fierce due to the presence of both long-standing banks and newer entrants. Banking industry leaders must prioritize the satisfaction of their clientele by providing superior service and goods. To maintain their competitive edge, banks must regularly test new approaches. As a result, this study aims to investigate how service quality affects clients' happiness in India's financial sector.

Testing the Long-term Relationship between Banking Concentration, Interest Rates and Net Interest Margin: A Panel Study

The current study aims to study the short and long-term relationship between the banking concentration of Jordanian commercial banks, interest rates and net interest margin using Panel data from (2007-2020), using the autoregressive distributed lag model. The study populations represents of 14 local commercial banks listed on the Amman Stock Exchange. To achieve the objectives and test hypothesis the E-views program was used. The empirical results revealed a long-term relationship between banking concentration, interest rates and net interest margin, and showed a positive impact on net interest margin in the long and short term. Accordingly, the study suggested a set of recommendations, the most important of which was working to enhance competition in the Jordanian commercial banking sector, which makes monetary policy more efficient and reducing transaction costs and diversifying the bank's activities, in addition to reducing the most frequent interest margin to promote investment and growth in Jordan.

The State of Competitiveness in Kuwait Banking Sector

The aim of this study is to examine the competitiveness in the Kuwaiti banking sector for the period 2010 - 2020. The methodology of study assessed the degree of competition among nine national Kuwaiti banks using the Panzar and Rosse model, or the H statistic approach. The study assessed how close the banking sector in Kuwait is to perfect competition. It built a model for the revenues of the banking sector in Kuwait. The model considered various specifications that affect the banking sector’s performance like revenues, risk, deposits, and bank size. In addition, this study analyzed the major factors affecting this sector’s performance. Using the panel data methodology of estimation, the results revealed that the market structure for the banking sector in Kuwait is close to monopolistic competition. Though the banking sector in Kuwait is still in its development stages, the results provided a signal to policy makers regarding their policies. One main implication of the study is to keep strong competition among banks which requires maintaining the stability within the banking system.

Can Fintech Foster Competition in the Banking System in Latin America and the Caribbean?

This paper revisits the competitive environment of the banking system in Latin America and the Caribbean and investigates the early impact of fintech development in the region thus far. Against the backdrop of high net interest margins (NIMs) and limited financial depth in the region, panel regressions broadly confirm the results of existing literature on the association of NIMs with the changes in financial sector structure, including market concentration, administrative costs, and foreign banks, although differences between domestic and foreign banks narrowed after the 2008-09 global financial crisis. Difference-in-difference regressions and case studies on Brazil and Mexico suggest that fintech is associated with reductions in NIMs and defensive responses by incumbent banks, both of which benefit consumers. The case studies also shed light on regulatory approaches and prudential considerations in fostering financial innovation and banking sector competition.

House price, credit supply, and government policy in China

Abstract. House prices in China have risen rapidly since 2000, accompanied by rapid credit expansion and falling interest rates on loans. This paper compares the stabilization effects and welfare implications of five policies on China's housing and credit markets. Three policies directly target the housing and credit markets: bank capital requirements, loan‐to‐value regulation and a property tax rule. Two broader policies are also considered: the reduction of capital controls and of the nominal exchange rate peg. To quantify the analysis, three prominent features of the Chinese economy—a monopolistically competitive banking sector that is subject to direct government control, a nominal exchange rate peg and capital controls—are built into a new Keynesian dynamic stochastic general equilibrium model. The model is estimated with Bayesian methods. Results show that relaxing capital controls is the most effective policy for stabilizing the credit market and the overall economy, while improving welfare. The second most effective approach is bank capital requirements, followed by a property tax rule. In contrast, loan‐to‐value regulation and a relaxation of the nominal exchange rate peg result in welfare losses to the economy.

Analysis of the Banking Sector Competition in Kosovo

Abstract This research paper aims to investigate the competition in the banking sector in Kosovo. For the research purpose, the secondary data from the Central Bank and commercial banks of Kosovo are used. Besides, the comparison methodology is used to analyse the banking sector for the years 2013-2017. The participation of commercial banks in the banking sector in Kosovo was compared and described, and the competitiveness of the banking sector was measured, using the HHI index and Concentration Ratio (CR4). Based on the research results, we can conclude that the competitiveness in 2017 was at a moderate level, in 2016 at a low level. Whereas, in the previous years, there was no real competition in this sector.

Competition and Market Contestability in Ghanaian banking industry: A Panzar-Rosse Approach

The present study evaluates the market structure of Ghana’s banking industry and estimates the nature and degree of competition. This study uses non-structural methodology proposed by Panzar-Rosse Model known as “H-statistic” to empirically assess competitiveness in the Ghanaian banking market. The study uses 23 banks in Ghana from 2000 to 2019, compiled and reported by Ghana Association of Bankers (GAB). The study results show that banks in Ghana derive their revenue in conditions of monopolistic competition. Thus, Contestable markets theory and Chamberlainian competition theory are validated by the study results. Furthermore, the study results revealed that from 2000 to 2019, after various structural reforms including the implementation of the FINSAP, competition in the Ghanaian banking sector increased. Finally, when the dataset was decomposed into local and foreign banks, the results indicate that monopolistic competition market conditions are found for both local and foreign banks. Managerially, the presence of a monopolistic market condition adds to the call for managers of the banks to consider factor input prices in an attempt to generate more revenues. Second, to avoid negative consequences of competition, managers of these banks should not rely on a single income source but also indulge in non-intermediation activities. In terms of policy, pro-structural shift policies that have helped with the transition from a monopoly structure to a monopolistic competition free entry or contestable market structure should be rigorously pursued by the policymakers. Besides, policy directives that enhance greater consolidation in the banking sector shouldbe pursued rigorously. Finally, the results from this study could help policy-makers to fashion an appropriate optimal intervention and stability policies geared towards enhancing banking stability at different levels of bank competition.

Assessing competitiveness in the MENA banking sector in the context of the quality of institutional variables and political conflict risk

Assessing competitiveness in the MENA banking sector in the context of the quality of institutional variables and political conflict risk