Competitive Banking Environment Research Articles

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.

Determinants of bank's efficiency in an emerging economy: A data envelopment analysis approach.

This study aims to assess the influence of internal and external factors on the Efficiency of banks in Pakistan using the Data Envelopment Analysis Approach (DEA). Bank's Efficiency is measured through DEA Model using input and output variables. The input variable includes the number of employees, number of branches, administration expenses, non-interest expenses, and loan loss provisions. In contrast, the output variable consists of net interest income, net commissions, and total other income. This study considers the internal determinants of the bank's Efficiency as corporate governance, enterprise risk management, ownership structure (state, foreign, and domestic ultimate owned banks), return on equity, financial leverage, and the size of the bank. The external determinants of the bank's Efficiency include banking structure and macroeconomic conditions. The study has used data from seventeen commercial banks over the period of 2011 to 2020. The study used the Data Envelopment Analysis Approach (DEA) and Logit and Probit Regression Model to evaluate research hypotheses. The Logit model results show that corporate governance, ultimate global ownership, and return on equity have a statistically significant and positive impact on the bank's Efficiency. Enterprise risk management and financial leverage adversely affect the bank's Efficiency. Better corporate governance can help banks to control the risk and cost of capital and enhancement the effectiveness of capital. Similarly, better risk management of banks can lead to better operational and strategic decisions in the competitive banking environment.

Influence of Behavioural Finance, Customer Satisfaction, and Service Quality on Bank-Switching Behavior

As banking clients and depositors became more service- and price-conscious in their purchasing behavior of financial services, their banking behavior was increasingly prone to change. Thus, bank customers tend to switch banks due to underlying factors that influence their behavior. However, banks strive to retain and attract more clients as this may increase their future income and reduce the risk of liquidation. The banking industry of South Africa is characterized by a concentration of dominance by fewer large banks. Hence, this study used a self-administered questionnaire in the economic hub of South Africa where most bank customers reside, Gauteng, South Africa. Customer satisfaction has been recognized to play a crucial role in success in a competitive banking environment. Thus, this paper investigated the influence of customer satisfaction on bank-switching behavior in a South African context using structural equation modeling. The findings show that customer satisfaction and bank reliability and empathy significantly influence depositors’ behavior to switch between banks. It was also found that a relationship exists between behavioral finance biases and the bank-switching behavior of depositors. The novelty of this paper is that understanding how depositors make their financial decisions and how they form their risk perceptions will contribute to managing banking risks. It may also advise banks on what will cause bank customers to switch from their bank to another. Keywords: bank switching, customer satisfaction, service quality, depositors. DOI: https://doi.org/10.55463/hkjss.issn.1021-3619.60.21

The state of implementing big data in banking business processes: An Indonesian perspective

Notwithstanding the perceived global potentiality, how big data enhances decision-making quality prompts an intriguing inquiry, especially in an increasingly competitive banking environment in developing economies. Building on an industry data-driven framework, this study strives to understand the state of implementing big data in the Indonesian banking sector. A deductively organized descriptive method employing in-depth interviews was conducted with subject matter experts representing Indonesian banking-related areas. The result and the following analysis show the modest status of big data implementation across three major banks and two complementary companies, as indicated by many elements of the framework phases that were found during the early adoption stage. This denotes a steady buy-in across banking business processes as particularly reflected in the framework’s four phases – continuing push to meet the variety aspect (intelligence), structured data architecture domination (design), limited choice of performance indicator for big data value (choice), and customer–corporate vision decoupling (implementation). While Indonesian banks have evidently initiated the big data implementation, further improvement remains imperative for the decision-making process. Accordingly, big data should be tightly coupled with a strong data-driven vision that drives decision-making across intra-firm actors. Handling data omnipresence shall be viewed as the embodiment of a data-driven vision.

Self-Organising (Kohonen) Maps for the Vietnam Banking Industry

This is the first study to use the self-organisation (Kohonen) map technique, an artificial neural network based on a non-supervised learning algorithm, to categorise Vietnamese banks into super-class groups. Drawing on unbalanced yearly data from 2008 to 2017, this study identifies two super-class groups (one and two). While group one consists of joint stock banks, group two consists of commercial state and joint stock banks. Using the non-structural indicator, the Lerner index, to capture market power, and the data enveloped analysis technique to measure bank performance, our result shows significant differences in Lerner scores (which represent bank market power) of the two groups of banks. Differences in the Lerner scores provide evidence of a group of strong banks that is isolated from other banks. This implies that this strong bank group has the potential to be monopolist and impairs Vietnam’s competitive banking environment. The reason is that group two banks may be more profitable due to greater market power, whereas group one banks may struggle to cut costs to remain viable. These findings provide a better understanding for bank executives, policymakers and regulators of the Vietnam banking industry, and ensure an efficient and competitive Vietnam banking environment.

Determinants of Technical University Students’ Choice of Banks: Empirical Evidence from Takoradi Technical University, Ghana

Background: The current competitive banking environment in Ghana demands that banks identify the factors key to their survival and work on these factors to ensure they remain in business. This involves the banks knowing what influences customers to choose to do business with one bank over the other. Objective: The study aimed at determining the factors the influence Technical University student’s selection of banks. Methods: Data from a cross-sectional survey of 545 student respondents of Takoradi Technical University was analysed using the statistical technique of factor analysis. Results: Four factors were adduced to be influencing bank selection amongst Takoradi Technical University students: namely, Robust E-banking, Customer Experience, Access to ATMs and Third Party Influence. Conclusion: While some of the factors are universal in nature others present with subtle nuances dependent on the milieu in which a bank finds itself, making it imperative that banks study the market in which they are operating and implement strategies deemed most suitable for attracting and retaining customers.

Financial Systems Theory: Banker-Customer Relationship and Nigerian Deposit Money Banks’ Performance: An Empirical Investigation

In today’s competitive banking environment, quality service is critical to individual Deposit Money Banks’ success. Delivering high quality service is closely linked to profit, cost, savings, and increasing market share. The major aim of this research is to examine the relationship that exists between Deposit Money Banks and their customers based on the challenges the banks are facing while giving quality service delivery. A sample size of 328 staffs of four selected banks was determined using the Yamane formula. The result showed that there is a positive and significant link between Deposit Money Banks’ performance and bank-customer relationship. This study therefore recommends among others that Deposit Money Banks should put more efforts in rendering good services to their customers.

Perceptions of Islamic banking products: Evidence from Malaysia

Purpose: Islamic banking products and services have always claimed to be unique from its traditional interest-based counterpart. However, in practice, many Islamic banks are alleged to have drifted away from its paradigm version. The purpose of this study is to gauge the perception of university students in Malaysia towards Islamic banking products. Research design, data and methodology: Data were collected from 250 Malaysian university students. Structural Equation Modeling (SEM) was performed to test proposed hypotheses to identify factors influencing customers' perception toward Islamic banking products. Results: The main finding indicates that most of the respondents are familiar with Islamic banking products and consider Islamic banking products as useful as its conventional counterparts. The regression results show that respondents are less convinced of adherence to Shari'ah, efficiency and helpfulness of existing Islamic banks. Conclusions: This is a cue to the Islamic banks' stakeholders that they need to realign their practices in an ethically responsible way in accordance with Shari'ah if they wish to secure existing customers and attract potential ones. In a competitive banking environment, most banks provide efficient and readily available service; thus, focusing on this as a strategy hardly distinguishes an Islamic bank from an interest-based bank.

The effects of nonwork and personal resources on frontline bank employees’ work engagement and critical job outcomes

Purpose The purpose of this paper is to propose a research model that investigates work engagement as a mediator of the effect of family support on proclivity to leave work early, in-role performance (IRP), service recovery performance (SRP) and extra-role performance (ERP). The research model also examines work engagement as a mediator of the impact of self-efficacy on the aforesaid outcomes. In addition to these relationships, the study assesses self-efficacy as an underlying mechanism linking family support to work engagement. Design/methodology/approach The authors employed a time-lagged design. Specifically, data were obtained from frontline bank employees (FBEs) in Russia in three waves, within one week time intervals. FBEs’ performance outcomes were rated by their managers. Findings As hypothesized, self-efficacy and family support foster FBEs’ work engagement, which in turn reduces proclivity to leave work early and activates IRP, SRP and ERP. In line with the study predictions, the findings highlight the impact of self-efficacy in the intermediate linkage between family support and work engagement. Practical implications Management should organize workshops where FBEs’ family members are invited to participate. In such workshops, they can understand the nature of frontline service jobs in the competitive banking environment and are expected to provide support to FBEs. This is significant because family support influences work engagement directly and indirectly through self-efficacy and affects the above-mentioned performance outcomes only via work engagement. Training programs should not only focus on the development of knowledge, skills and abilities for service delivery and complaint handling but also center on the costs arising from nonattendance behaviors/intentions. As a result, these programs should make FBEs minimize such intentions. Originality/value Work engagement is still a timely topic and there have been calls for the identification of factors influencing work engagement and its consequences among frontline employees. Therefore, our study uses family support and self-efficacy as the two crucial resources that can influence employees’ positive psychological states and their work performance. Further, using solid theoretical underpinnings such as conservation of resources, social information processing, and job demands-resources theories, our study is the first to link family support and self-efficacy to multiple performance outcomes and nonattendance intentions via work engagement among FBEs.

Pricing Mechanism of Banking Products

The pricing problem of banking services is quite versatile and requires resolving a number of issues. In the context of a competitive banking environment and the expansion of the range of banking services, it becomes necessary to find the most effective mechanisms for making price offers. As a rule, the customer is interested not simply in the banking service, which is available in almost any second-tier bank, but in high quality and affordability. Based on the synthesis of the quality management process of banking services and the pricing process, this article proposes a model for setting prices for banking products and services with regard to their quality. The starting point for the research was the works of domestic and foreign authors on the essence of banking marketing, the relationship between the price of the banking product and its quality, and the problem of choosing possible quality assessment methods by examining a bank credit. The authors' model of an algorithm for finding the price/quality ratio of the banking service is offered, which gives a step-by-step description of the process of assessing the characteristics of the banking service. The article shows what opportunities are opened for the bank subject to the assessment of the price/quality ratio of the banking service.

Banking efficiency in emerging economies: Does foreign banks entry matter in the Ghanaian context?

AbstractThis study empirically examines the effect of foreign banks entry on banking efficiency scores, using the truncated regression data envelopment analysis model for 25s banks in Ghana, over a 6‐year period (2010–2015). We decompose the efficiency scores into three (technical, cost, and allocative efficiency), and the results indicate that banks in Ghana are marginally inefficient in operating closer to their optimal capacity. The findings show that the input‐oriented model slacks are needed to push an inefficient bank closer to where an efficient bank is positioned. From the results, an immediate and a short‐term entry of foreign banks have a consistent negative relationship with both technical‐ and cost‐efficiency scores whereas long‐term entry of foreign banks shows an inconsistent relationship with the three banking efficiency scores. Thus, the drive towards a positive impact of foreign banks entry on the three efficiency scores is dependent on the form of banking efficiency considered and the interaction term between competitive banking environment (competition) and foreign banks' entry. The study suggests that policymakers and managers in emerging markets should improve on their bank efficiencies in both a competitive banking environment and during periods of foreign bank entry. Moreover, managers of banks should make adjustment to their input resources in order to cope with new banking technologies from foreign bank entry—thereby improving banking efficiencies.

Competition and commercial banks risk-taking: evidence from Sub-Saharan Africa region

ABSTRACTThis study investigates the relationship between competition and the risk-taking attitude of banks. We test how this relationship manifests in the Sub-Saharan African(SSA) region’s commercial banks in light of the competition-fragility view, using the generalized methods of moments. We studied 440 commercial banks in 37 SSA countries over the period 2006–2015. The results provide evidence that supports a positive relationship between competition and banks’ overall risk as well as their credit risk but suggests that off-balance sheet risk reduces with competition. We, therefore, conclude that the propensity to undertake higher risk in a competitive banking environment largely accounts for fragility as argued in the competition-fragility view.

Does Competition Cause Stability in Banks? SFA and GMM Application to Sub-Saharan Africa Commercial Banks

Investigating the competition-stability view in relation to the banking sector, the intention behind this study was to find out how far efficiency is associated with a competitive banking environment and if it warrants the continued agitation towards fostering increased competition in banking markets around the world. This view has significant support in spite of the potential instability that could possibly result from risk appetite, which the competition-fragility view holds to be associated with competition. We employed a stochastic frontier analysis (SFA) to model an instrumental variable of competition resulting from increased efficiency or inefficiency due to bank-level competition, which we used in the regression of competition against stability using the generalized method of moments (GMM). We found that competition increased the efficiency of the banking sector over the study period. The regression results of our instrument against stability in the Sub-Saharan Africa region was found to be positive and strongly significant with stability providing evidence of transmission from competition to efficiency to stability, and, hence consistent with competition-stability views. Our conclusion is that while competition is desirable, it must be optimized to enhance efficiency without which the effects become detrimental. Therefore, there must be ongoing regulation to check excessive competition.

Does Competition Cause Stability in Banks? SFA and GMM Application to Sub-Saharan Africa Commercial Banks

Investigating the competition-stability view in relation to the banking sector, the intention behind this study was to find out how far efficiency is associated with a competitive banking environment and if it warrants the continued agitation towards fostering increased competition in banking markets around the world. This view has significant support in spite of the potential instability that could possibly result from risk appetite, which the competition-fragility view holds to be associated with competition. We employed a stochastic frontier analysis (SFA) to model an instrumental variable of competition resulting from increased efficiency or inefficiency due to bank-level competition, which we used in the regression of competition against stability using the generalized method of moments (GMM). We found that competition increased the efficiency of the banking sector over the study period. The regression results of our instrument against stability in the Sub-Saharan Africa region was found to be positive and strongly significant with stability providing evidence of transmission from competition to efficiency to stability, and, hence consistent with competition-stability views. Our conclusion is that while competition is desirable, it must be optimized to enhance efficiency without which the effects become detrimental. Therefore, there must be ongoing regulation to check excessive competition.

Competitive Condition of Sub-Saharan Africa Commercial Banks

AbstractThis study assesses the competitive environment and the determinants of the Sub-Saharan Africa commercial banking sectors. We used the Lerner index that is generally acknowledged as the best at estimating the bank level competition and the Generalised Method of Moments (GMM) to study 440 commercial banks for the period 2006 to 2015. We found a monopolistic competitive banking market. We also observed that competition is driven by the level of bank capital including some bank specific variables. Hence, we concluded that the banking market of the SSA region is contestable and competitive. As such, we recommend, among other things, that policy makers should device measures to ensure an ongoing competitive banking environment while stimulating other economic variables to complement this feat.

Impact of Market Discipline on the Capital Adequacy of Banks: Evidence from an Emerging Economy

This research paper presents empirical support to the role of market discipline in augmenting bank capital ratios in a competitive banking environment. Using a panel data set of domestic commercial banks in Pakistan from 2009-2014 the study analyses whether the market penalized banks for increase in their risk profile through a rise in cost of raising funds. The results find significant relationship between capital adequacy and other risk factors, with cost of deposits demonstrating how depositors align the required return to the perceived risk level of the bank. These findings have important implications for policy makers as the market discipline could compliment the role of regulators, which would eventually lead to a lower cost of supervision. Moreover the focus of international reform process as seen through implementation of Basle III, should continue to be on developing a more competitive and transparent banking system.

Efficiency Assessment Parameters of Public Sector Banks in India

In today’s complex and more competitive banking structure and environment, only efficient banks will survive. This has become more significant in view of the increased pace of globalization and liberalization more particularly after 1991 when the financial liberalization process was initiated in India followed by more stress on globalization in 2000. The consolidation of the banks has been receiving attention of the government and the central bank of the country. However, there remain some practical aspects which are hindrances to this process. In this article an attempt has been made to analyze public sector banks’ efficiency though the scaling technique, as prescribed efficiency indicators of banks while keeping in view the size of the bank. It is observed during the analysis that only a few of the banks are close to high efficiency and rest lie on a satisfactory efficiency level. In addition, to assess the degree of correlation among various efficiency parameters, the Statistical Package for the Social Sciences (SPSS) technique has been used for measuring the efficiency of banks in a more realistic manner. It was further observed that there is a significant relation among return on assets (ROAs), spread and profit per employee.

The Impact of Market Discipline on Banks’ Capital Adequacy: Evidence From an Emerging Economy

This study presents empirical support for the role of market discipline in augmenting bank capital ratios in a competitive banking environment. Using a panel dataset on domestic commercial banks in Pakistan from 2009 to 2014, the study determines if the market penalized banks for any increase in their risk profile through a rise in the cost of raising funds. The results point to a significant relationship between capital adequacy and other risk factors, with the cost of deposits demonstrating how depositors align the required return to the perceived risk level of the bank. These findings have important implications for policymakers as market discipline could complement the role of regulators, which would eventually lower the cost of supervision. Moreover, the focus of international reforms as seen through the implementation of Basel III should continue to be on developing a more competitive and transparent banking system.

Институт банковского пенсионного обеспечения: конкуренция с традиционными институтами

The article analyzes the pension reform implemented in Russia in 2013–2014, provides the modeling of possible pensions, determines the efficiency boundaries for the use of insurance and savings-insurance schemes offered by the Pension Fund of Russia. The author examines the activities and effectiveness in managing pension savings and reserves from non-state pension funds, especially the system of voluntary savings insurance. The study identifies the challenges faced by these financial institutions, which constrain the development of the Russian pension system. Drawing on logical and econometric analysis the author identifies the competitive opportunity for banks to participate in the Pension Benefits Act, calculates the proposals’ efficiency for future retirees and the banking system as a whole, determines the contribution of the proposed solutions to enhanced competition and more competitive banking environment.

Determinants Of Bank’s Profitability In EU15

Abstract In this paper we analyse determinants of bank profitability of EU15 banking systems for the period 2001-2011. We use as proxy for banks profitability the return on average assets (ROAA), the return on average equity (ROAE) and net interest margin (NIM). We also measure the impact of the first and the largest wave of enlargement (10 new members in 2004) on EU15 bank profitability, introducing a dummy variable. The contribution of this paper for the empirical literature is that there are no other studies that deal bank profitability for all EU 15 countries for the period considered (2001-2011). The literature splits the factors that influence banks’ profitability in two large groups: bank-specific (internal) factors and industry specific and macroeconomic (external) factors. Our results are in line with the economic theory. Cost to Income Ratio, credit risk and market concentration had a negative influence in case of all measures of banks’ profitability, while bank liquidity only for ROAE and NIM. The size of banks had a negative impact on NIM, suggesting that bigger the bank is, smaller the net interest margin ratio is, but, on the contrary, in case of ROAA, had a direct effect. The market concentration had a negative influence, meaning that the increasing competition, as a structural point of view, increases banks’ profitability. The results show us that the process of European Union enlargement from 2004 does not have significant impact on EU15 banking systems’ profitability. It has a week and negative effect only in case of net interest margin. As policy recommendations, we suggest for authorities a better supervision for credit risk and liquidity and maintaining a competitive banking environment. For banks’ management we also recommend to monitor the credit risk indicators, optimizing costs and diversifying the sources of income.