Concentration In Banking Industry Research Articles

Exploring the Main Effect of e-Banking on the Banking Industry Concentration Degree on Predicting the Future of the Banking Industry: A Case Study

Today, regarding the rapid growth of Information and Communications Technology (ICT), e-commerce, and the subsequent expansion of electronic banking, the banking market structure is also expected to dramatically be changed. This paper aims to explore the main effect of electronic banking on the structure of the Iranian banking industry by investigating the banking market concentration degree. To accomplish this aim, an intelligent hybrid model is developed based on multilayer perceptron neural network and fuzzy regression of the effects of banking on the relative electronic share of banks. In the developed method, the neural network parameters such as weights and errors have been considered as the fuzzy parameters to model it under uncertainty. Ultimately, the descriptive statistics are utilized to evaluate how the difference in relative size of banks concerning e-banking has changed, in addition to exploring the main effect of e-banking on the bank’s contribution described as a neural network-fuzzy regression model. Moreover, it shows how the concentration degree in the Iranian banking sector has been reduced. The implemented analysis of the reasons for this decrease reveals that the share of banks has decreased due to an increase in the share of the small banks. Furthermore, model estimation confirms that there exists a positive relationship between banks’ share and the use of electronic banking. Besides, the small banks have strongly been shown to utilize the e-banking so that it would lead to an increase in their share and a decrease in the concentration degree. As such, it can be concluded that e-banking has reduced the concentration degree in Iran. The descriptive statistics are employed to prove it.

Impacts of financial openness on economic complexity: Cross‐country evidence

AbstractFew studies are found to examine the relationship between financial openness and economic complexity. Using a panel data of 120 economies during 1996–2016, this paper aims to examine the impact of financial openness, human capital, institutional quality, banking industry concentration, and other factors on economic complexity. We establish dynamic panel models that incorporate lagged‐dependent variables and employ the Generalized Method of Moments (GMM) for estimation. Our pooled‐sample regression results show that the enhancement of overall financial openness could increase the economic complexity significantly, as well as de‐facto and de‐jure openness. The subsample regressions indicate heterogeneous impacts of financial openness depending on country groups and industry. Besides, there exists significant path dependence for ECI improvement, which is more prominent in high‐income countries. For low‐ and middle‐income countries, greater GVC participation and lower banking concentration can promote ECI improvement significantly.

Bank concentration, competition, and financial inclusion

Expanding access to financial services holds the promise to help reduce poverty and foster economic development. However, little is still known about the determinants of the outreach of financial systems across countries. Our study is the first attempt to employ a large panel of countries, several indicators of financial inclusion and a comprehensive set of bank competition measures to study the role of banking system structure as a determinant of cross-country variability in financial outreach for households. We use panel data from 83 countries over a 10-year period to estimate models with both country and time fixed effects. We find that greater banking industry concentration is associated with more access to deposit accounts and loans, provided that the market power of banks is limited. We find evidence that countries in which regulations allow banks to engage in a broader scope of activities are also characterized by greater financial inclusion. Our results are robust to changes in sample, data, and estimation strategy and suggest that the degree of competition is an important aspect of inclusive financial sectors.

Macroeconomy and Banks’ Profitability in Nigeria

Banks, like any other businesses are driven by the profit motive. The banking environment in Nigeria has been fraught with major macroeconomic shocks over the years. This study therefore analysed the impact of macroeconomic dynamics on banks’ profitability in Nigeria. Specifically, the study examined the impact of macroeconomic variables (Gross domestic product growth, Inflation, and Crude oil price) on banks’ profitability. It also seeks to examine the significance of microeconomic variables (cost to income ratio, loan to deposit ratio; loan to total assets ratio and total assets) on banks’ profitability. It analysed the impact of banking industry concentration on banks’ profitability. The estimation technique follows a panel regression which studied a cross section of the banking firms while observing the heterogeneity in the individual firms. The results indicated that the ratio of cost to income market concentration, and crude oil price are negatively significant in determining changes in return on average equity while total assets is positively significant in explaining return on average equity (as a measure of profitability). The study recommended that banks’ exposure to the oil and gas sector must be properly managed given the significant impact of crude oil price on banks’ profitability. It is evident that the Nigerian banking industry is fairly competitive, and banks size matters in determining profitability. Banks management must therefore focus on strategies that will give them cost advantage as well as differentiate them from other competitors.Key Words: macroeconomy, bank, profitability

Concentration–Profitability Nexus: New Approach from Causality

The study revisits the concentration–profitability nexus of the structure–conduct–performance (SCP) paradigm. It contributes to the literature by considering the argument from the perspective of causality since existing empirical works only consider a unidirectional relationship of concentration as being determined by profitability, neglecting the feedback relationship. Unlike the existing studies, this study includes loan and advances, and the deposit concentration besides the total asset to capture concentration for robustness. Using Nigerian banking industry to test our proposition, the empirical results show the existence of bi-directional relationship between profitability and banking concentration indices, implying that past banking industry concentration indices can explain the present level of profitability in the Nigerian banking industry and vice versa. Furthermore, the results of the study also show a negative relationship between banking concentration and profitability levels in Nigeria.

Credit market concentration, relationship lending and the cost of debt

We investigate how the banking industry concentration and the strength of credit relationships (relationship lending) jointly affect the cost of borrowing of firms. Our results indicate that relationship lending is not associated with the rent extraction mechanism deriving from informational lock-in. Conversely, market concentration appears to be associated with firms' higher cost of funding. But the effect is fully compensated if the relationship between the firm and the bank is long and comprehensive. Controlling for a number of covariates and for endogeneity concerns leaves results unchanged. Our results shed some new light on the unclear effects documented by Kysucky and Norden (2016) of relationship lending on the cost of financing.

Bank Scale of Economies, Banking Industry Concentration, and Competition Level: The Indonesian Case

Banking sector efficiency in a country is directly influenced by regulations that set up by the banking authorities in that country, especially what kind of banking industry structure that regulator intend by those regulation. Indonesian Banking Architecture which encourage mergers and acquisitions of smaller banks, has a clear target that Indonesian banking industry should have a leaner industry structure with fewer number of banks but with relatively large assets, higher industry concentration higher and more tighter competition. This policy is driven by the regulator’s belief that Indonesian banks has not achieved its economies of scales and competition is relatively low so that the Indonesian banking operating costs are among the highest among Asian countries. The opposite actually happened in the USA where the regulator is precisely to prevent mergers between major banks due to economies of scale bank in the United States has been exceeded. The reserach results showed the group of large banks in Indonesia is more efficient than medium and small banks and the efficiency is more due to economies of scale than caused by the concentration of the industry and the level of competition between banks.

Credit Market Concentration, Relationship Lending and the Cost of Debt

We investigate how the banking industry concentration and the strength of credit relationships (relationship lending) jointly affect the cost of borrowing of firms. Our results indicate that relationship lending is not associated with the rent extraction mechanism deriving from informational lock-in. Conversely, market concentration appears to be associated with firms’ higher cost of funding. But the effect is fully compensated if the relationship between the firm and the bank is long and comprehensive. Controlling for a number of covariates and for endogeneity concerns leaves results unchanged. Our results shed some new light on the unclear effects documented by Kysucky and Norden (2016) of relationship lending on the cost of financing.

Bank Concentration, Competition, and Financial Inclusion

Expanding access to financial services holds the promise to help reduce poverty and foster economic development. However, little is still known about the determinants of the outreach of financial systems across countries. Our study is the first attempt to employ a large panel of countries, several indicators of financial inclusion and a comprehensive set of bank competition measures to study the role of banking system structure as a determinant of cross-country variability in financial outreach for households. We use panel data from 83 countries over a 10-year period to estimate models with both country and time fixed effects. We find that greater banking industry concentration is associated with more access to deposit accounts and loans, provided that the market power of banks is limited. We find evidence that countries in which regulations allow banks to engage in a broader scope of activities are also characterized by greater financial inclusion. Our results are robust to changes in sample, data, and estimation strategy and suggest that the degree of competition is an important aspect of inclusive financial sectors.

Competition in American Commercial Banking, 1888-1925

Using structural price markup models and Rosse-Panzar tests, this paper demonstrates little deviation from competitive behavior, taken as a weighted average of all U.S. commercial banking markets. The results suggest Bertrand competition or contestability in banking and indicate that banking industry concentration does not in itself produce anti-competitive behavior. ROE shows no trend over the period, but returns on assets fell by more than half between 1888 and 1925. Banks earned modest ROE premia and negative ROA premia over government bond rates. Profitability was lower than in the remainder of the 20th century.

The state of competition of the Chinese banking industry

This paper presents empirical assessments of the competitiveness of the banking industry in China during 1996–2000. Since asset concentration in China's banking industry does not seem to be decreasing, and since it has long been believed that banking industry concentration impairs competitiveness, it is worthwhile to assess the state of competition there. In this paper, we use the Panzar–Rosse method in various ways in order to ensure the robustness of the results. The conclusion is that the banking system in China was already near a state of perfect competition before foreign banks began to enter China's financial market.

History of Banking in Romania: First Part

Romania has been selected among the 10 Central and Eastern European candidates for EU membership, ranking second as importance after Poland and is expected to join the Community in 2007. Romanian financial institutions have to face today adaptations and opportunities and banking business in the country seems fairly attractive to foreign banks. The paper highlights the rise and the development of banking in Romania and covers the period going from the peace of Adrianople (1829) up to the end of World War II. At the time of iron wall all Eastern Europe fell under Soviet control. Therefore also in this country was enforced by the ruling power the socialist banking by means of nationalization and concentration of banking industry. Prior to that event Romanian banking industry had achieved a satisfactory level of development and adequate operational standards. The financially powerful and industrial advanced countries of western and central Europe (i.e. Britain, France and Germany) had supported the development of Romanian banking, a process started in XIX century and continued in the first part of XX century with a few years interruption during World War I. In the period between the achievement of national unity (Romania Mare) in 1920 (Treaty of Trianon) and the great world depression this country played a remarkable role in international political relations and enjoyed an age of social and economic progress that reminded the Dacia Felix of the Romans. Inflow of foreign capital and financial know-how gave a substantial contribution to growth, deepening and diversification of banking industry and financial sector in Romania. The position of relevant supplier of raw materials in Europe allowed Romania, on the one hand, to gain a quick economic recovery in the years before the outbreack of World War II, but, on the other hand, gave rise to foreign appetites and domestic political instability. Weakness of Franco-British guarantee of Romanian territorial integrity after surrender of France (June 1940) was the cause, firstly, of the loss of territories (Eastern provinces of Bessarabia and northern Bucovina occupied by Red Army; northern Transylvania and southern Dobruja ceded, respectively, to Hungary and Bulgaria) and, secondly, of the fall of the country under the German control. Participation to the invasion of USSR as Germany's ally in 1941 involved the Romanian banking system in financing war expenditure. Eventually, military defeat followed by capitulation brought up the political and economic collapse of the country under Soviet rule.

Banking Industry Structure, Competition, and Performance: Does Universality Matter?

By studying the German universal banking system in the pre-World War I period, in comparison with its American and British counterparts, this paper investigates whether universality (the combination of commercial and investment banking services) influences banking industry concentration, levels of market power, or financial performance of banks. The short answer is no. First, given that the UK's specialized commercial banking sector was structured very similarly to the German universal industrial banking sector, and that neither system was extremely concentrated in the pre-war era, the paper argues that universality does not necessarily or uniquely propagate concentration. Second, on average, German universal banks behaved no less competitively than their American counterparts in the provision of loan services. Structural price markup models, as well as reduced-form Rosse-Panzar tests, demonstrate little deviation from competitive pricing in either country. The findings therefore indicate that universality does not lead to appreciable market power, in either an absolute or a relative sense. These same results also imply that banking industry concentration, at least up to the moderately high levels found in Germany, does not in itself produce anti-competitive behavior. The empirical results, though contradictory to common wisdom about German universal banking, are easily motivated by the theoretical literature in industrial organization. Finally, estimates of returns on equity and on assets suggest only slight international differences in average returns over extended periods, but large deviations in individual years. Adjusting for prevailing rates on government bonds, commercial loans, or commercial deposits narrows the gaps further. Universality is not linked with superior profitability, whether the hypothesized source is efficiency (economies of scope) or monopoly power. These three sets of findings may assuage fears that deregulation in American banking could lead to excessive concentration and therefore collusive behavior. At the same time, the results may lower hopes of significant efficiency gains from broadening the scope of services.