Rosse Model Research Articles

The State of Competitiveness in Kuwait Banking Sector

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

The Efficiency of Indonesian Commercial Banks: Does the Banking Industry Competition Matter?

This study examines the effect of banking industry competition on the efficiency of commercial banks in Indonesia from 2010 to 2019. First, using data envelopment analysis (DEA), the results showed that the commercial banks in Indonesia are moderately efficient. Second, this study uses H-statistics, obtained through the Panzar–Rosse model, to measure the level of competition. The results showed that the banking industry competition in Indonesia is a monopolistic market. In addition, this study also analysed other factors affecting bank efficiency, namely non-performing loans (NPL), loan to deposit ratio (LDR), capital adequacy ratio (CAR), bank size, and economic growth. This study used the Tobit estimation method to analyse the effect of competition and other variables. The results showed that tighter competition in the banking industry reduces the commercial banks’ efficiency. The results of this study support the competition-inefficiency hypothesis. Other variables such as CAR, LDR, and economic growth had a significant effect on bank efficiency. Meanwhile, the NPL variable and bank size had no significant effect.

Concentration, Foreign Participation and Bank Performance: An Empirical Study of Asian Emerging Markets

There is an abundance of literature on the relationship between market structure and profitability. Market share and concentration are usually analytical tools serving as indicators of market structure. There have been many empirical studies based on the structure–conduct–performance (SCP) theory. However, the correlation between market structure and bank interest spread has rarely been discussed in depth. Therefore, this paper constructs financial industry firm-level panel data of Asian emerging market countries from 2001 to 2015 to further explore the impacts of foreign bank participation, financial market concentration and the level of competition on bank spreads. Apart from the differences in samples, the most significant difference from the previous literature is that this paper considers the best indicators of competitiveness, namely the H value of the Panzar–Rosse (P-R) model to measure the banking market and competitive conditions. This study provides a more complete and detailed analysis by adopting the system GMM approach to perform the estimation and avoid the problem of endogeneity. Regarding the overall sample, the participation of foreign banks has had a positive and significant impact on bank interest spread, suggesting that the participation of foreign banks is a major factor influencing bank interest spread in the general financial markets in Asian emerging market countries, and that more foreign banks in local financial markets can help improve bank performance.

Market Structure, Income Diversity, and Stability: Empirical Study of Banking Industry Indonesia

Banking as an intermediary institution has an essential role in the world of economy. Apart from providing financing to the real sector, banks currently still dominate the Indonesian financial system with an asset share of 77.25%. Based on the existing conditions, Indonesia's banking market is still dominated by several banks, especially in the BUKU 4 bank group. This is to indicate a bank of Indonesia is generally still facing relatively low competition. In addition, the large concentration makes it necessary for banks to divert their main activities by diversifying into non-traditional activities in carrying out their operations. This study aims to analyze how the market competition in Indonesia during the period 2014-2019 and examine the effect of competition and diversification income on stable banks. The panzer rosse model is used to analyze the market structure; for diversification, this research uses calculations with the Herfindahl Hirshman Index while stability uses two risk measures, namely NPL and Z Score, as a proxy for stability. The results show that, in general, the banking industry is under monopolistic competition. Competition has a significant effect on stability banks as measured through NPL risk, and this research supports the competition-fragility paradigm. A meanwhile, diversification income variables have not to effect on stability.DOI: 10.26905/jkdp.v25i3.5887

COMPETITIVE STRUCTURE AND TECHNICAL EFFICIENCY OF BANKING INDUSTRY IN INDONESIA

Competition is an important aspect in an industry that may affect business continuity. The practice of a market structure concentrated on five major banks caused differences in efficiency and can ultimately influence competition between banks. This study aims to analyze the structure of competition and the level of technical efficiency in the banking industry during 2014-2018 period. 79banks were grouped into business group according to the core capital and were analyzed based on the groups. This study used non-structural Panzar Rosse method to analyze the competition structure. Afterwards, non parametric DEA (data envelopment analysis) method was used to determine the level of efficiency. The results showed that the banking industry in Indonesia generally operates under monopolistic competition. In addition, based on efficiency performance, bank BUKU 4 has the highest performance. This is because large of banks can produce larger economies of scale.  Keywords: market structure, banking, panzar rosse model, efficiency, Data Envelopment Analysis (DEA)    

Bank competition in India: revisiting the application of Panzar–Rosse model

PurposeThe paper measures the degree of bank competition in Indian banking over the period 1996–2016. Using bank-level annual data, we revisit the case of banking competitiveness during the prefinancial and postfinancial crisis and examine whether the global financial crisis alters the level of bank competition in India. Additionally, this paper addresses the misspecification issues associated with the widely used Panzar–Rosse model in Indian banking context.Design/methodology/approachWe apply Panzar and Rosse (1987) H-statistic and evaluate the degree of bank competition by estimating the extent to which changes in input prices are reflected in revenues earned by banks. Subsequently, we link this measure of competitiveness to a number of structural indicators (HHI and CRn) to examine the structure-conduct-performance hypothesis, which assumes that a concentrated banking system can impair competition. The simple panel regression model was used to handle the empirical estimations.Findingsfindings reveal that the Indian banking system operates under competitive conditions and earns revenues as if under the monopolistic competition. We also find evidence that Indian banks are competitive, even under a concentrated market structure. This observation runs, in contrary, to the prediction of the structure–conduct–performance hypothesis. The findings also indicate the differences in the estimated H-statistic value after considering the misspecifications of the P–R model.Practical implicationsFrom policy perspectives, policymakers should focus more on maintaining an optimal level of bank competition by mitigating entry restrictions, exercising less consolidation and withdrawing overregulation from banking activities. A competitive banking industry ensures both efficiency and stability.Social implicationsA competitive banking sector by lowering interest rates margin provides easier access to finance to both households and small and medium enterprises (SMEs).Originality/valueThis is the only study that addresses the misspecification of the P–R model while assessing competition in Indian banking and provides a thorough understanding of the role of concentration on bank competition.

Competitiveness of Indonesian banking industry based on commercial bank business group: Panzar Rosse Model

The present research was aimed to investigating the competitiveness in Indonesian banking sector during the period of 2005 to 2016, to set the limit of the scope of the study a total sample is 84 banks. This research was conducted by grouping banks based on ownership and based on BUKU (General Bank based on Business Activities). The study also aimed to analyze the banking competitiveness based on classification of banks and groups of capital ownership. The study was conducted by evaluating the value of H-statistic for the research model comprising of three input variables, namely funds, labors and capital. The results of the research show that the market of banking industry in Indonesia is classified as monopolistic competition. The limitation of this study is that this study only looks at the competition variable, and has not seen its relationship with other variables. In subsequent studies, it is expected to conduct research related to competition and relate it to other variables, such as market share or level of market concentration.

The Effect of Competition Levels and Banking Concentration on Systemic Risks: Indonesia’s Case

Normal 0 false false false EN-US X-NONE X-NONE This article analyzes the relationship between Indonesian banking competition, concentration, and systemic risk, using the characteristics of individual banks and state variables as control variables. This article uses the Panzar–Rosse Model and Concentration Ratio to measure banking competition and concentration, while measuring systemic risk by applying CoVaR. The empirical result shows that concentration and competition increase systemic risk. This means increasing competition leads banks to take higher risks, and also shows that banks with high market power tend to charge higher interest rates, thus increasing systemic risk. The Net Interest Margin as a control variable is statistically significant in competition-systemic risk models as well as in concentration-systemic risks. These findings support the competition-fragility view that banking system stability is seriously affected by banking competition level, especially in decreasing net interest margin periods. On an individual bank level, the competition-systemic risk relationship depends on the bank size and the interbank deposit ratio, but the capital structure and demand-deposit to total funding ratio are not significant.

Competitive Environment in Banking Industry: Evidence from an Emerging Economy

The study investigates competitive conditions in commercial banking sector of Pakistan. The study employs a measure of estimating banking competition derived from modified Panzar and Rosse Model – The PR Model. The data was obtained from annual financial statements of 22 commercial banks listed on Pakistan Stock Exchange (PSX) for the period 2007-2016. The H-statistic for commercial banking sector is calculated through three different estimation methods (OLS, GLS fixed effects and GMM). The results depict monopolistic competition and significant role of bank size in determining the level of competition in commercial banking sector of Pakistan. The empirical evidence unveils that more competition exists between smaller banks as compared to larger banks. Further, speed of adjustment in profits with respect to factor input prices is better in smaller banks as compared to their larger counterparts. The findings imply that the speed adjustment process is slow, which allows commercial banks in Pakistan to accumulate abnormal profits.

Is the MENA banking sector competitive?

The purpose of this paper is to investigate the competitive conditions and revenue drivers of commercial banks in the MENA region in the context of Panzar–Rosse model. It is the first study of its kind that examines a large sample of MENA banks for an extensive period (1999–2012) during an era of political and economic unrest and transformation that includes the the global financial crisis (2007–2009). Panel data analysis using fixed effects was employed in order to examine whether the competitive conditions in MENA banks is explained by monopoly, monopolistic competition or perfect competition. Findings show that MENA banks operate under monopolistic competition, and bank-specific variables show a positive impact on revenue. These findings indicate that policymakers should relax capital adequacy requirements to guarantee the stability of the financial system. They also raise a concern that commercial banks in the MENA economies tend to concentrate on traditional lending activities, where their competitive position may be eroded in the long run by the decreasing state role of Islamic banks and by mergers that are not empirically justified for MENA banks during this period.

PROSEDUR UJI KEPATUHAN TERHADAP PRINSIP BERSAING ISLAMI PADA INDUSTRI PERBANKAN SYARIAH: SEBUAH PROPOSAL BERDASARKAN TEORI DAN KAJIAN EMPIRIS ORGANISASI INDUSTRI

An industry in Islamic Economics is required to compete perfectly regardless of its market structure. How to ensure this rule being implemented in reality, however, has been neglected either in literatures or by industry supervisors. This paper is aimed at proposing a systematic procedure to test the industry compliance toward islamic competition rules. The advance of theory and empirics of New Empirical Industrial Organization is used to formulate the procedure. There are two conditions to satisfy for an industry to have an islamic competition. The first and necessary condition is rejecting the Traditional Hypothesis which is based on collutive bahaviour of dominant banks. The second and sufficient condition is, the perfect competition is driven more by the intention of syariah compliance rather than due to the pressure of contestability. Keywords: SCP Paradigm, Perfect Competition, Contestable Market, Traditional Hypothesis, New Empirical Industrial Organization, Islamic Competition, Structural Approach, Nonstructural Approach, Panzar and Rosse Model

PROSEDUR UJI KEPATUHAN TERHADAP PRINSIP BERSAING ISLAMI PADA INDUSTRI PERBANKAN SYARIAH: SEBUAH PROPOSAL BERDASARKAN TEORI DAN KAJIAN EMPIRIS ORGANISASI INDUSTRI

An industry in Islamic Economics is required to compete perfectly regardless of its market structure. How to ensure this rule being implemented in reality, however, has been neglected either in literatures or by industry supervisors. This paper is aimed at proposing a systematic procedure to test the industry compliance toward islamic competition rules. The advance of theory and empirics of New Empirical Industrial Organization is used to formulate the procedure. There are two conditions to satisfy for an industry to have an islamic competition. The first and necessary condition is rejecting the Traditional Hypothesis which is based on collutive bahaviour of dominant banks. The second and sufficient condition is, the perfect competition is driven more by the intention of syariah compliance rather than due to the pressure of contestability. Keywords: SCP Paradigm, Perfect Competition, Contestable Market, Traditional Hypothesis, New Empirical Industrial Organization, Islamic Competition, Structural Approach, Nonstructural Approach, Panzar and Rosse Model

Liberalization Outcomes and Competitive Behaviour in an Emerging Insurance Market

AbstractThe liberalization of financial services industry has generally been associated with the creation of large firms, increased foreign presence and the ability to diversify into a broad range of activities. In this paper, we examine the effect of these outcomes on competitive behaviour in the non‐life insurance market in South Africa. Using annual data on 79 non‐life insurers, we employ the Panzar–Rosse model to estimate the H‐statistics competitive index for samples of large versus small insurers, domestic‐owned versus foreign‐owned insurers and single versus multi‐line insurers. Overall, our findings reveal that non‐life insurers in South Africa conduct their pricing under conditions of monopolistic competition. The sub‐market estimates of the H‐statistics indicate that the activities of small, foreign‐owned and single‐line insurers improve competitive behaviour in the market. This suggests that while liberalization outcome in increased foreign presence improves competition, the creation of large firms from consolidation reduces competitive pressures in the non‐life market. The results are robust to both static and dynamic specification of the Panzar–Rosse Model.

국내 생명보험산업의 경쟁도 변화에 대한 융합적 연구: 방카슈랑스와 퇴직연금제도의 시행을 중심으로

국내 생명보험산업의 경쟁도 변화에 대한 융합적 연구: 방카슈랑스와 퇴직연금제도의 시행을 중심으로

Assessing the competition in Angola’s banking industry

ABSTRACTThis article analyses the level of competition in Angola’s banking industry using the Panzar–Rosse model with data from 2005 to 2014. Competition is a vital aspect of the banking market and therefore it is central to policy-making. The results reveal that Angola banking competition is monopolist and therefore lower competition is found in Angola banks. Policy implication is derived.

How Competitive and Stable is the Commercial Banking Industry in China after Bank Reforms?

This paper examines market concentration and its effect on competition in the Chinese commercial banking market. This study also investigates how changes in competition have affected the financial stability of Chinese commercial banks. To test the competitive conditions, we obtained the H statistic of the Panzar- Rosse model from a revenue function equation. The degree of financial stability is estimated by the Z-score formula. The Chinese banking industry has become an increasingly less concentrated market with an increased number of banks. Along with a decreased market concentration, competition in the Chinese banking industry has improved moderately. However, its market structure is still far from a competitive market. An individual bank’s ability to earn higher markup or charge a higher net interest margin contributes to its financial soundness, although a higher degree of market concentration may have negative effect on the financial stability of the entire banking system.

Concentration and Competition in Turkish Banking Industry: The Evidence from 2000 to 2012

<p><em>Banking industry worldwide has been transformed due to globalization, financial liberalization, technological developments, government policies, deregulation of financial services, financial crises and increase in mergers and acquisitions since 1980. With these changes, there is a trend towards decrease in the number of banks and increase in banking concentration. Increase in banking concentration might affect competition conditions in banking industry. The decrease in the number of banks and the increase in banking concentration dominate the Turkish banking industry after the banking crises in 2000 and 2001. This paper examines the relationship between concentration and competition in Turkish banking industry. I measure the size of banking concentration by concentration ratios and Herfindahl-Hirschman index with the data of commercial deposit banks in Turkey from 2000 to 2012. Competition degree is measured by using Panzar Rosse model. The results of the study suggest that there is no permanent relation between banking concentration and competition in Turkish banks.</em></p>

RESEARCH OF COMPETITION IN DEPOSIT MARKET OF UKRAINE BASED ON THE PANZAR-ROSSE MODEL

The problem in an adequate assessment of the level of competition in the banking market has prompted researchers to search constantly some new methods. The most famous of them were later successfully adapted to the banking market, are a models of Bresnahan, Panzar-Rosse, Bertrand, Iwat, Monti-Klein-Modesto Barros and others. In Ukraine, the process of assessing the level of competition in the banking sector is very relevant, in line with the recent reforms of particular relevance and distribution. Regarding the domestic deposit market, there is a shortage of qualitative analysis of this issue, unlike foreign practice. Therefore this study we try to solve this problem. The key goal of researchers in this study is in a detailed analysis to identify the important factors which make influence on the allocated markets, in particular on lending and deposit rates. Based on these factors there could be implemented internal adjustment processes taking place in the markets. The purpose of the article is to determine the level of competition in the deposit market of Ukraine in 2006-2015 basing on nonstructural Panzar- Rosse model and identify key factors that affect this level. Methodology. To research the level of competition in the deposit market of Ukraine the Panzar-Rosse model was used, in which separate 11 models were built using the integrated tool “Multiple regression” in the software package of statistics analysis STATISTICA. The input data in the model was presented with the information on financial performance of Ukrainian banks during ten years from 01.01.2005 till 01.01.2015. Results of this research showed that in Ukrainian deposit market there is a monopolistic competition, as proved by the calculated values of H-statistics index. The year of 2008, in the context of the global economic crisis, was marked as an unbalanced period for deposit market of Ukraine. Practical implications. Knowing the current state of competition level in the market, a number of phenomena that occur in it can be explained and a number of effective measures for its control can be designed. Value/originality. In Ukraine, the process of assessing competition in the banking sector, in line with the recent reforms, is becoming more popular and relevant. As for the domestic deposit market, there is a shortage of qualitative analysis of this issue, unlike the foreign practice. So this research will help to solve the problem.

Competitiveness of Vietnam’s Financial Institutions in the Global Financial Market: The case of Vietnam’s Commercial Banks

Using panel data collected from financial statements of 28 commercial banks in Vietnam, this paper investigates their competitiveness through an analysis of such a few elements as bank size, technological level, human resources quality, and managerial level. For a more objective evaluation the paper employs the Panzar–Rosse (P–R) model along with the use of some common econometrical techniques like Pooled OLS, FEM, REM, GLS, and H-statistic. The results show that the overall competitiveness of these banks is higher, compared to the pre-crisis period of 2008–2009. The monopolistic competition among them are also found, together with certain improvements in bank competitiveness, observed through increased bank size, enhanced human resources quality, better technological advances, and higher levels of managerial skills in compliance with international standards.

Does the expansion of regional cross-border banks affect competition in Africa? Indirect evidence

This article investigates how bank competition has evolved in Africa following the recent penetration and expansion of regional cross-border banks over the past decade. We examine changes in competition in the banking industry of seven African countries highly affected by this recent phenomenon. The evolution of competition is evaluated through three different non-structural measures of competition (Lerner index, Panzar–Rosse model, and Boone indicator). With the exception of results from the Lerner index, our findings show an intensification of competition since the mid-2000s. This period corresponds to the rapid expansion of regional cross-border banks in the zone, indicating that this expansion has promoted competition in banking sectors in Africa.