Competition In Banking Industry Research Articles

Cross-Border Banking Services and Determinants of Bank Selection from Corporate Customer’s Perspective: Evidence from Vietnam

This paper focuses on assessment of cross-border services in the Vietnam banking system in the context of international integration from customer’s perspective. The authors used Exploratory Factor Analysis (EFA) in SPSS from survey of 153 corporate clients of Vietnamese banks in 2018 to evaluate the current situation of offering cross-border services as well as competitiveness of banking system in Vietnam. Research results show that from customers’ perspective three key factors relating to marketing policy, infrastructure and financial capacity of banks are the most important factors in selection of using cross-border banking services in Vietnam. Survey results show that competitiveness of Vietnamese banks is reaching medium level but much lower than the expectation of customers. Therefore, the authors propose to Vietnam banking system some recommendations including: (i) Improving the services’ quality, especially in terms of technology and depth of cross-border banking services; (ii) Focusing more on customer care activities by developing more useful applications on smartphones, tablets and computers, create the linkage among banks and end-users, develop digital marketing instead of traditional marketing methods; (iii) Maintaining domestic market as well as finding new markets abroad, especially in the ASEAN countries, in order to gradually increase the diversification as well as the quality of cross-border financial and banking services.

Efficiency and Competition in Banking Industry: Case for ASEAN-5 Countries

This paper analyzes the level of the efficiency and competition (market structure) of ASEAN-5 banking industry from 2005 until 2016. Two methods were employed, i.e. Stochastic Frontier Analysis and Adjusted Lerner Index. The former is utilized to measure the bank efficiency in ASEAN-5 countries and the latter is applied to measure the bank competition (market structure) in ASEAN-5 banking industry. In order to connect the efficiency and competition level of ASEAN-5 banking industry, this study also utilizes quadrant analysis based on three different periods, namely the period before the global crisis (2005-2008), the period after global crisis (2009-2015), and the period after the establishment of ASEAN Economic Community –AEC- (2016). The results reveal that on average, the efficiency and the competition level of banks in ASEAN-5 countries are found to be relatively high. The competition in ASEAN-5 banking industry could be classified as monopolistic where each bank competes by diversifying their products or segments.

WHAT DRIVES BANKING INDUSTRY COMPETITION IN DEVELOPING COUNTRIES?

A competitive banking industry leads to an efficient allocation of financial resources, consequently increasing investment and economic growth. However, pervasive market inefficiencies and outmoded business practices often deter competition in the banking industry of developing countries. The present study examines the determinants of bank competition in such nations for the period 1995-2014 and compares that with high income countries. Employing both fixed-effects and GMM estimations and using two different measures of bank competition, we find greater diversification, credit risks and economic freedom to promote competition in developing countries while higher capitalization, profitability and cost efficiency increases market power.

The Effect of Bank Market Power on Economic Growth in Africa: The Role of Institution

We provide empirical investigations into the nexus between bank market power economic growth using nationalized bank data from 44 African countries from 2002 to 2015. The paper also explores how institutional quality factors influence the mechanisms through which banks with market power influence economic growth. Finally, the paper analyzed how the level of bank market power interact with sub-regional integration to induce economic growth across six sub-regions in Africa. We employed the first differences GMM model to achieve the above objectives. The results show that less competitive banking systems in Africa induce economic growth. In addition, institutional quality improvement induces positive economic growth and improves the degree at which bank market power affects economic growth. The influence of institutional quality on economic growth however vary depending on specific institutional factors even when we differentiated the effect of the level of bank market power. In West Africa, the competitive nature of the banking environment induces economic growth but the less competitive nature in the banking environment of the other sub-regions discourages economic growth. The results call for policy directions that improve economic and political institutions as well as the competitiveness of sub-regional banking environment.

Whither competition in Malaysia’s banking industry ex post a restructuring

PurposeThe purpose of this paper is to report how banking competition has fared ex post a major consolidation exercise completed during 2002-2004, which led to a complete restructuring of the sector in Malaysia. Nothing is known about the competitiveness of banking system ex post a major consolidation of banks in any country including Malaysia, a middle-income economy.Design/methodology/approachThe authors apply two models, the Panzar and Rosse (1997) and the Lerner index (1934). The two competitiveness measures are quite refined, well received by researchers, but has yet been applied to measure banking sector competitiveness of a middle-income country to characterize post-merger behavior using post-global-crisis data set. The data were complemented by documentary analysis, including brand documents, descriptions of internal processes and copies of employee magazine articles.FindingsThe results indicate that, after 11 years of consolidation, the banking sector is not operating under perfect or monopolistic competition. Malaysia’s banking industry continues to benefit the charter holders at increasingly lower level because a cartel-like environment still provides trade-off of competition costs before 2002/2004 with the costs from a cartel-like industry structures now. There is only a weak evidence that, in recent years, the banking sector is moving toward more competition.Research limitations/implicationsThe chosen area of research is to test the response of the banking sector ex post consolidation after a crisis. It enables researcher to compare results with those of other countries and may not be generalizable.Practical implicationsThe findings reported in this study using corroborating measures for the first time, appear to suggest increasing concentration from consolidation may lead to the undesirable cartel-like industry structure where the exercise of market power in the name of stability may not be welfare promoting.Originality/valueThis paper fulfills an identified need to study how the banking sector has performed ex post consolidation after a crisis.

Resolving Conflicts in Measuring Banking System Competitiveness – MNB Banking System Competitiveness Index

The competitiveness of a national economy structurally depends on the efficiency and quality of financial intermediation, which is in a close relationship with the competitiveness of the banking system. In our opinion, banking system competitiveness can best be captured through the sustained supportive role of the banking system in economic growth, which in practice is implemented through the efficient allocation of financial resources. In the course of our research we developed an index designed to measure the competitiveness of European banking systems which, in our understanding, is the first of its kind. It models competitiveness from two different or even conflicting perspectives – from the consumer and from the investor side alike – and synthesizes the results received. Our analysis points out that the Hungarian banking system lags significantly behind its peers with respect to the price-setting of loans to households, digitalisation and operational efficiency, and presents the sources of competitive advantage in national economies with a competitive banking system in place.

DETERMINANTS OF INTEREST RATE SPREAD AMONG COMMERCIAL BANKS IN KENYA

Purpose: To establish the determinants of interest rate spread among commercial banks in Kenya.
 Methodology: The study utilized a descriptive survey research design.
 Findings: The results indicated that the commercial banking sector has witnessed a gradual rise in the Interest rate spread. Results also showed that the mean of market structure has been fluctuating with year (2010) being the lowest with mean of 4 and year (2012) being the highest with mean 12. Results also showed that there was no regulation from the year (2005) to the year (2009) but it was later adopted whereas regulations shoot steadily to mean of 1.0 in the year (2009) and remained in the same level the rest of the years. The regression results indicate that there is a positive and significant relationship between market structure, credit risk and interest spread. The regression results also indicated that there is a positive but insignificant relationship between access to information and interest spread. Further, the results indicated that there is a negative and significant relationship between regulation and interest spread.
 Unique contribution to theory, practice and policy: The study is important to the management of Commercial banks as it will provide an insight on the factors influencing interest rate spread among commercial banks in Kenya. The results of this study will provide information to policy makers and other stakeholders in the financial sector (especially the banks) to come up with strategies that help in dealing with the high interest rate spread experience in the banking sector and thus improve on the financial performance of the organisations. It may be used as a tool for persuading commercial banks to reduce their interest rates spread and hence increase their volume of business, which of course would compensate the loss in the interest rate spread. The study will also be invaluable to the government and CBK. This is because the monetary policy framework of Central Bank of Kenya and its implementation will be guided by a need to ensure, among others: realistic interest rate spreads that encourage financial deepening and a safe, sound, efficient and competitive banking system through discreet risk management. These findings therefore might influence the effectiveness of economic policies. The research results will also be important to scholars and researchers as it will add to the existing pool of knowledge.

Bank competition and economic growth

PurposeThe degree and impact of competitiveness in the banking sector is of great importance as this has great impact on the financial system and the wider economy. A question of interest here is, does competition in the commercial banking sector boost or hamper economic growth. The purpose of this paper is to test the hypothesis that competitiveness in commercial banking is linked to economic growth.Design/methodology/approachThe authors use the Boone (2008) indicator to estimate competitiveness of banking markets in ten frontier countries in Africa from 2005 to 2012. This model measures banking competitiveness by assessing the relationship between relative marginal costs and relative market share. Through a panel data model, the authors examine the effect banking sector competitiveness has on economic growth.FindingsThe results of Boone (2008) indicator suggest that, to a greater extent, banks in the countries studied have a competitive banking sector. The results of the panel data estimation support the hypothesis that banking sector competition impacts positively on economic growth.Practical implicationsThe paper recommends for more policy geared towards enhancing bank competition. This is because competitive banking system will allocate resources more efficiently to improve economic growth.Originality/valueTo the best of the authors’ knowledge, this is the first study to test the link between bank competition and economic growth in a cross-section of Frontier African countries.

Banking on Innovation, Innovation in Banking at ICICI Bank

A robust banking sector is crucial to the economic health of every nation. In India, the fast‐growing and competitive banking industry is being challenged by new regulations and ever‐evolving customer needs. Based in Mumbai, Industrial Credit and Investment Corporation of India Bank has become a leader in its industry by strategically using technology to broaden its reach to under‐served consumers in rural communities with innovative products, financial literacy outreach, and efficient modes of product delivery. Positioning itself as both technologically savvy and customer‐friendly, Industrial Credit and Investment Corporation of India Bank has stayed ahead of the competition by anticipating customer requirements for secure, efficient, and seamless service. © 2016 Wiley Periodicals, Inc.

Modelling satisfaction-commitment relationship in developing country context

Purpose– Considering the significance of customer satisfaction and commitment in the competitive banking industry of developing countries, the purpose of this paper is to investigate the alternative relationships of satisfaction with various types of commitment, benefits, quality and trust. It also attempts to identify the interrelationships among three types of trust, namely, competence, contractual and goodwill, as well as affective, calculative and normative commitment.Design/methodology/approach– Structural equation modelling (AMOS-based) is used to analyse data collected from a survey of 212 bank customers in Bangladesh.Findings– Findings show that satisfaction has a significant impact on affective, calculative and normative commitment, as well as on competence, contractual and goodwill trust. While core and relational service qualities, and confidence and social benefits influence the level of satisfaction, tangible service quality and special treatment benefit seem to have no significant effect on satisfaction. Finally, all three types of trust are found to have a strong influence on affective commitment; however, contractual trust and competence trust are found to have no impact on calculative and normative commitment.Practical implications– The paper provides insights for bank management in order to understand the relative importance of each type of trust, commitment, quality and benefit, and their relationships with satisfaction.Originality/value– It is the first to take the initiative to test a large range of relationships in a single study to better understand customer satisfaction in the banking industry in a developing country context.

Study of the Mediating Role of Organizational Citizenship Behavior in the Relationship of Workplace Spirituality with Customer Loyalty and Service Quality in Saman Bank

In today highly competitive banking industry, customer loyalty and customer satisfaction with banking services are among the important preconditions for survival and growth of banks. In this context, the relationship between customers and employees providing services is of significant importance and in general it can be said that frontline employees may attract customers and gain their satisfaction and loyalty by providing services beyond their role requirements. Present research aims to study the role played by workplace spirituality in organizational citizenship behavior, service quality and customer satisfaction. In present applied research, a survey methodology was employed and questionnaire copies were distributed to the sample derived from a statistical population comprising of all staff and customers of north Tehran branches of Saman Bank. Random stratified sampling procedure was used to obtain the appropriate sample for present study. As a result of it, 230 questionnaires (equal to the total number of employees) and 341 questionnaires (according to a sample based on Krejcie & Morgan table with an estimated statistical population of 3000) were respectively distributed to employees and customers. Structural equation modelling (SEM) and LISREL software were used to study the relationships. Research findings confirmed all hypothesized relationships between the studied concepts.

Bank Failure and the Financial Crisis: An Econometric Analysis of U.S. Banks

The analysis of bank failures enables the understanding of the relevant financial and economic factors underlying the bank’s solvability and survival in a sound and competitive banking system, allowing a preventive behavior for bank management and regulators.This research is focused on the study of banks’ failures and on the understanding of the crisis period specificities. The study identifies the main determinants that divide banks in a good financial situation from those in a bad one, thus providing us with the instruments needed to avoid the limit situation of bankruptcy. A great span of variables is used, including the very well documented literature set of CAMELS – Capital, Assets quality, Management, Earnings, Liquidity, Sensitivity to market risk, and other non-CAMEL variables such as credit risk, tax, growth and size.The data panel used in this research was collected from the Federal Deposit Insurance Corporation (FDIC) statistics on depository institutions, comprising 11.121 banks from 2000 to 2014, including the crisis subsample which presents a higher number of failures, from 2008 to 2014.The methodology joins Principal Components Analysis, intending to select non-redundant variables, and the Logistic Regression, allowing the identification of variables that reveal statistical explicative power.The research findings point out the consistent role of CAMEL indicators during both the broadest period of analysis and, more specifically, the crisis period of financial instability. Furthermore, during the financial crisis, a relevant impact of the Management Quality factor is noticed, as well as the arising of the capital growth indicator, the latter being a vehicle to finance losses and maintain credibility.

Market power, efficiency and bank profitability: evidence from Ghana

This study examines the determinants of bank profitability in Ghana within the market power, relative market power and efficient structure frameworks. Using annual data on 26 Ghanaian banks from 2003 to 2011, we employ the Herfindahl Index and concentration ratio as our proxies for market power hypothesis while efficiency scores from the data envelopment analysis is employed as a proxy for the efficient structure hypothesis. The system generalized method of moment is employed to estimate a panel data model with return on assets, return on equity and net interest margin as our proxies for bank profitability. The results of the empirical estimation reject both the market power and relative market power hypotheses in the Ghanaian banking industry. While technical efficiency is found to have a positive relationship with profitability to support the efficient structure hypothesis, a negative relationship between scale efficiency and profitability is reflected by the inability of banks to operate at the optimal scale of operations. We also document evidence on the low persistence of profit which suggests a competitive banking industry. Implications for industry regulation are discussed.

Private Money and Banking Regulation

We show that a competitive banking system is inconsistent with an optimum quantity of private money. Because bankers cannot commit to their promises and the composition of their assets is not publicly observable, a positive franchise value is required to induce the full convertibility of bank liabilities. Under perfect competition, a positive franchise value can be obtained only if the return on bank liabilities is sufficiently low, which imposes a cost on those who hold these liabilities for transaction purposes. If the banking system is monopolistic, then an efficient allocation is incentive-feasible. In this case, the members of the banking system obtain a higher return on assets, making it feasible to pay a sufficiently high return on bank liabilities. Finally, we argue that the regulation of the banking system is required to obtain efficiency.

Private Money and Banking Regulation

We show that a competitive banking system is inconsistent with an optimum quantity of private money. Because bankers cannot commit to their promises and the composition of their assets is not publicly observable, a positive franchise value is required to induce the full convertibility of bank liabilities. Under perfect competition, a positive franchise value can be obtained only if the return on bank liabilities is sufficiently low, which imposes a cost on those who hold these liabilities for transaction purposes. If the banking system is monopolistic, then an efficient allocation is incentive feasible. In this case, the members of the banking system obtain a higher return on assets, making it feasible to pay a sufficiently high return on bank liabilities. Finally, we argue that the regulation of the banking system is required to obtain efficiency.

Foreign participation and banking competition: Evidence from the Indonesian banking industry

Foreign participation in Indonesian banking has expanded from the establishment of foreign de novo banks into the acquisition of existing local banks. The increase in foreign participation has therefore not been associated with a growing number of banks. This study aims to examine the competitive behavior of foreign and local banks as a competitive banking industry is important in boosting economic efficiency and economic growth. This study also examines the role of modes of entry of foreign banks on competition, either through the establishment of foreign de novo banks or the acquisition of local banks. The recent methodological refinements of the Panzar–Rosse method developed by Bikker et al. (2011) are employed to estimate the level of competition among local and foreign banks. Generally, the foreign banks, particularly foreign de novo banks behaved more competitively than local banks, and their penetration is therefore important in creating a contestable market. This study found that in terms of assets, on average foreign de novo banks were smaller, more efficient, and had lower overhead costs, so they could offer lower loan rates and disburse more loans. The recent consolidation in the Indonesian banking industry may have an adverse impact on competition as it restricts the establishment of foreign de novo banks.

A Pre-Recession Comparative Analysis of Cost, Productivity and Employees’ Efficiency in Indian Banking Industry

The core task of banking industry planning is to achieve economic growth which ordinary market forces cannot. Banking industry planning is act of socialism which depends upon collectivism and uses scant resources to achieve certain deliberate chosen ends. For the purpose, banks have to establish equilibrium between cost and employee's productivity along with global standards between demand and supply in prevailing socio, political and economic environment, and have to coordinate its pace and efficiency with ever changing technological and metamorphic environmental developments within and outside the political boundary. In order to become globally competitive Indian banking industry needs revolution especially in cost prone efficiency which can effectively mobilize and productively utilize public savings to optimum. It is a core truth that Indian modern universal banking can survive in global competition if it has employee's productivity and cost efficient new hybrid financial products and specialized services at par. This paper attempts to explore the relation between employee's potential to overall cost; and for the purpose pre recession period from 1997 to 2008 has been taken for study. For the same employee's productivity and employee's cost ratios comparison has been carried out between the traditional and modern hybrid banks. The outcome of study produced the fact that during the period of study performance of traditional social sector and private banks were below par in comparison to modern hybrid, universal foreign banks. The study also revealed the fact that by recognizing the shortcoming and later implementing measures, Indian banking industry minimizes the performance gap.

The Dynamics of Bank Spreads and Financial Structure

This paper investigates the effect of within banking sector competition and competition from financial markets on the dynamics of the transmission from monetary policy rates to retail bank interest rates in the euro area. We use a new dataset that permits analysis for disaggregated bank products. Using a difference-in-difference approach, we test whether development of financial markets and financial innovation speed up the pass through. We find that more developed markets for equity and corporate bonds result in a faster pass-through for those retail bank products directly competing with these markets. More developed markets for securitized assets and for interest rate derivatives also speed up the transmission. Further, we find relatively strong effects of competition within the banking sector across two different measures of competition. Overall, the evidence supports the idea that developed financial markets and competitive banking systems increase the effectiveness of monetary policy.

The impact of information technology on bank profitability in Nigeria

This paper examines the impact of information technology on bank profitability. Using a sample comprising one-quarter of the banks in Nigeria currently quoted on the Nigerian Stock Exchange, regression results were in conflict with a priori expectations, which indicated that information technology spending in the study period had no significant impact on future operating performance. The results remained robust irrespective of alternative measures of profitability. This surprising outcome, among other things, is likely connected with the fact that investment in information technology is now a common denominator for all banks and that the data set is from a sub-Saharan African country where investment in information technology by banks is not yet at its prime level. However, what the results show is that information technology investment is inevitable for banking institutions to enable them to continue to operate efficiently in the current competitive banking industry.

Determinants of customer relationship marketing success in Islamic retail banking

Muslims and non-Muslims alike are increasingly turning to Islamic banks as alternative to interest-centric conventional banks. Islamic banks exist and operate in accordance with Shariah principles enshrined in the Holy Quran. For Islamic retail banking to thrive and survive in today’s competitive banking and financial services industry occasioned by a number of conventional banks opening up Islamic windows, Islamic bank managers must aggressively adopt good customer relationship marketing. Given that the recent global financial crisis had little or no impact on Islamic banks throughout the world, Muslims and non-Muslims demand for Islamic banks’ products and services are on the rise. This acknowledged evidence presents a significant opportunity for Islamic banks to compete and remain successful. To do just that mandates Islamic banks to focus on utilising effective customer relationship marketing strategies to acquire and retain customers. Using a decision support model, this paper seeks to quantify the d...