Competition In Banking Industry Research Articles

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...

The nexus between competition and efficiency: The European banking industries experience

In this paper, we investigate competition in banking systems in the EU27 as a whole for the period 2004–2010, but also for old members’ banking systems compared with new members’ banking systems and for banking systems from countries member of euro zone compares with banking systems from countries non-member of euro zone. In order to investigate this issue, we estimate a non-structural indicator of banking competition, using the H-statistic indicator that is estimated using bank-level data. Also, we apply two tests of convergence, β- and σ-convergence, for assessing competition evolution during the specified period. We want to fill the gap in the banking literature testing the validity of the Competition–Efficiency Hypothesis, analysing the impact of the banking competition measures on two alternative measures of efficiency, cost and profit efficiency, in the European banking systems in a Granger-causality manner. The results confirm us that in the EU the convergence process occur from the banking systems with higher competition level than the mean score of all countries. The evidence for all groups of countries, except non-euro zone group, where results are not statistically significant, confirm the Competition–Efficiency Hypothesis in terms of cost and profit efficiency.

Bank competition, financial innovations and economic growth in Ghana

Purpose– This paper takes the finance-growth nexus further by looking at the relationship between bank competition, financial innovations and economic growth in Ghana. The purpose of this paper is to find the causality among bank competition, financial innovations and economic growth in Ghana.Design/methodology/approach– The relationship between bank competition, financial innovations and economic growth was established through the framework of the endogenous growth model. In addition, the paper employed the bound testing ARDL cointegration procedures to enable us to establish both short-run and long-run relationship between bank competition, financial innovations and economic growth. Granger causality test were also estimated to determine the direction of causality.Findings– The results showed that, in the long run, bank competition is positively related to economic growth while financial innovation is negatively related to economic growth. In the short run, bank competition is negatively related to economic growth. By the same token, financial innovation is positively related to economic growth in the short run. In terms of causality, the results showed that there is unidirectional Granger causality from bank competition to economic growth. However, there is bidirectional Granger causality between financial innovation and economic growth.Practical implications– The study therefore, recommends for more regulations toward a more competitive banking system with more innovative products tailored toward mobilization of savings and investment to growth induced sectors of the economy.Originality/value– This paper provides a time series perspective to the finance-growth nexus and highlights the potential contribution of effective banking development to the economic welfare of the Ghanaian citizens.

Bank Competition, Financial Innovations and Economic Growth in Ghana

This paper takes the finance-growth nexus further by looking at the relationship between bank competition, financial innovations and economic growth in Ghana. The paper also aimed at finding the causality among bank competition, financial innovations and economic growth in Ghana. We carried out the research using quarterly data from 1990 to 2009. The relationship between bank competition, financial innovations and economic growth was established through the framework of the endogenous growth model. In addition, we employed the ARDL cointegration procedures to enable us establish both short-run and long-run relationship between bank competition, financial innovations and economic growth. The results showed that, in the long run, bank competition is positively related to economic growth whilst financial innovation is negatively related to economic growth. In the short run, bank competition is negatively related to economic growth. In the same token, financial innovation is positively related to economic growth in the short run. In terms of causality, the results showed that, there is unidirectional Granger causality from bank competition to economic growth. However, there is bidirectional Granger causality between financial innovation and economic growth. The study therefore, recommends for more regulations toward a more competitive banking system with more innovative products tailored toward mobilization of savings and investment to growth induced sectors of the economy.

Customer Satisfaction in Banking Industry: A Gap Analysis Approach

The financial reforms initiated in the year 1991 posed a lot of challenges before the Indian banking sector; one of the major challenges faced by retail banking deals with the customer satisfaction and loyalty. Today’s banking customers have become more aware and rational in their approach than ever. Customer satisfaction and formulation of marketing strategies to attract more and more customers towards the banks are now becoming a key issue in order to survive in the competitive banking industry for every bank. The current study is an attempt to find out the gap between the expected and the perceived satisfaction levels of bank customers. For the purpose of the study, data were collected through primary sources by framing a questionnaire on the basis of SERVQUAL scale and review of literature. To analyse the collected data, Gap Analysis and t-test have been employed. The results of the study bring out the major differences in customers’ expectations and perceptions from banking services, thus showing dissatisfaction among bank customers.

Sunspot bank runs in competitive versus monopolistic banking systems

This paper extends the Diamond and Dybvig (1983) model to compare two banking economies: one with a competitive banking system and another with a monopolistic one. It is shown that a competitive banking system is more fragile than a monopolistic one in the sense that the parameter set stipulating that a bank run equilibrium exists in the competitive banking system dominates the set in the monopolistic one.

Competition and efficiency in EU27 banking systems

In our study, we investigate competition in the banking systems of the EU27 as a whole, but also in both old EU member states and new EU member states, in the context of European Union integration and enlargement. Specifically, we construct 2 measures of competition, the Lerner Index and H-statistics, using bank-level data for a panel of 923 commercial banks from the 27 countries that are member states of the EU. The results show a significant increase in competition in new EU members between 2001 and 2006, while in old member states we see a notable decrease in competition between 2005 and 2007. As a whole, competition in the EU27 increases comparatively with 2001, and we consider adoption of the euro and continuing European integration to be the main factors for this issue. Additionally, empirical results provide evidence of convergence in terms of banking competition among the member states of the EU.

Financial Crisis, Regulation and Competition: The Romanian Banking Experience

By the early 1970s, competition in the banking system was limited. Reduced competition in the banking system was due to regulations adopted by many countries after the financial crisis of the 1930s. At that time, authorities believed that the high risks which banks have assumed, in a fierce competition context, led to destabilization of the financial system. After the 1980s, deregulation, financial liberalization and technological change were important factors that have led to increased competition in the banking sector. Therefore, an important issue for regulators and supervisors is the relationship between competition in the banking system and financial stability. The specialty literature, both theoretical and empirical, has not reached a consensus on the effects of competition on financial stability. This problem became more acute under the global financial crisis. Against this background, the paper analyses the role of competition in the Romanian banking system in the context of the global crisis. The paper is structured as follows: the first section reviews the arguments supporting that increased competition in banking system leads to improved financial stability; the counterarguments are mentioned later. The role of regulations in managing the competition in banking system is also emphasised. The last section analyzes developments on competition and stability in the Romanian banking system.

Monetary Policy and Banking Structure

In this paper, I examine the differences in optimal monetary policy in various banking systems. In particular, I compare two monetary economies: one with a competitive banking system and the other with a monopolistic one. In addition, the optimality of the discount window policy is considered. It is shown that the Friedman rule is the optimal monetary policy in a monopolistic banking economy, and the zero-inflation policy is optimal in a competitive banking economy under appropriate parameters. In addition, the combination of the Friedman rule and the discount window policy can achieve efficient allocation in both banking systems.

Bank-level estimates of market power

The aim of this study is to provide an empirical methodology for the estimation of market power of individual banks. The new method employs the well-known model of Panzar and Rosse (1987) and proposes its estimation using the local regression technique. Local regression yields coefficient estimates equal to the number of observations and, thus, market power is estimated for each bank at each point in time. In addition, a number of restrictive assumptions regarding the properties of the production function of banks are relaxed. A panel of banks from transition countries that has been recently employed by Delis (2010) to obtain market power estimates using the Panzar and Rosse model at the country level is used for comparative purposes. We find that country averages of the bank-level results exhibit a very close relationship with standard, industry-level Panzar–Rosse estimates. However, the empirical results suggest that many banks in countries with fairly competitive banking systems deviate significantly from the country averages and that market power varies substantially across banks in each country.

BANKS, CREDIBILITY AND MACROECONOMIC EVOLUTION AFTER A PRODUCTION SHOCK

One of the important functions of financial intermediation is intertemporal risk smoothing. In this paper we study the effects of a production shock in a closed economy and compare the abilities of market-based and bank-based financial systems in processing the shock. The analysis of the shock propagation indicates that a competitive banking system may collapse in the absence of a proper regulation. Paradoxically, it is the credibility of banks that makes bank-based economies fragile. A necessary and sufficient condition for successful bailout schemes is proposed.

Macroeconomic Implications of “Deep Habits” in Banking

Recent empirical evidence shows that price‐cost margins in the market for bank credit are countercyclical in the U.S. economy and that this cyclical behavior can be explained in part from the fact that switching banks is costly for customers (i.e., from a borrower hold‐up effect). Our goal, in this paper, is to study the “financial accelerator” role of these countercyclical margins as a propagation mechanism of macroeconomic shocks. To do so, we apply the “deep habits” framework in Ravn, Schmitt‐Grohé, and Uribe (2006) to financial markets to model this hold‐up effect within a monopolistically competitive banking industry. We are able to reproduce the pattern of price‐cost margins observed in the data, and to show that the real effects of aggregate total factor productivity shocks are larger the stronger the friction implied by borrower hold‐up. Also, output, investment, and employment all become more volatile than in a standard model with constant margins in credit markets. An empirical contribution of our work is to provide structural estimates of the deep habits parameters for financial markets.

Are Competitive Banking Systems More Stable?

Using the Panzar and Rosse H‐statistic as a measure of competition in 45 countries, we find that more competitive banking systems are less prone to experience a systemic crisis and exhibit increased time to crisis. This result holds even when we control for banking system concentration, which is associated with higher probability of a crisis and shorter time to crisis. Our results indicate that competition and concentration capture different characteristics of banking systems, meaning that concentration is an inappropriate proxy for competition. The findings suggest that policies promoting competition among banks, if well executed, have the potential to improve systemic stability.

EXPLAINING THE MARKET POWER OF GHANAIAN BANKS1

AbstractA competitive banking system helps lower transaction costs and risks. It also helps make financial markets more efficient. In Ghana however, observers believe that the banking industry is not competitive and point to the huge spread between bank lending and borrowing rates as evidence. The Ghanaian banking industry is analysed for evidence of market power by computing the Lerner Index of banks using quarterly data from 2001 to 2006. The evidence is that Ghanaian banks possess market power. Factors that significantly explain the market power of Ghanaian banks are: bank size, efficiency of banks with respect to staff costs, the macroeconomic environment and time.

AN APPROACH TO TEACHING MONETARY POLICY SINCE DEREGULATION

Since the full institution of deregulation the mechanics of how monetary policy operates has fundamentally changed. No longer can a change in stance be shown as shifts in the exogenously‐determined money supply function in the Keynesian interest framework, because in competitive banking systems the money supply process is fully endogenous. Money endogeneity correctly suggests a reinterpretation of the vertical money supply function. A vertical money supply function drawn against bond yields does not automatically mean exogeneity. Monetary policy is best shown as shifts in the money demand function.

DO RISK PREMIA PROTECT AGAINST BANKING CRISES?

This paper examines the question to what extent premia for macroeconomic risks in banking are sufficient to avoid banking crises. We investigate a competitive banking system embedded in an overlapping-generations model subject to repeated macroeconomic shocks. We show that even if banks fully incorporate macroeconomic risks into their pricing of loans, a banking system may enter bankruptcy with probability one. A major cause for this default is that risk premia of a competitive banking system may become too small if the capital base is low.

A global analysis of culture and imperfect competition in banking systems

The high concentration of the banking sector is a cross-border phenomenon that has a strong impact on local and global economies. The primary goal of this paper is to analyse the factors that affect concentration in banking systems around the world. The innovation of this paper is that it combines economic, 'economic environment' and cultural variables as explanatory factors in this analysis. Among other things, it was found that regulation in the banking system helps ensure that it remains competitive. It was also found that cultural dimensions, such as power distance, have an impact on the level of concentration in the banking industry.