Market structure-performance hypothesis in Kenyan banking industry

2015 ◽  
Vol 10 (4) ◽  
pp. 697-710 ◽  
Author(s):  
Solomon W. Giorgis Sahile ◽  
Daniel Kipkirong Tarus ◽  
Thomas Kimeli Cheruiyot
Keyword(s):  
Market Structure ◽  
Market Efficiency ◽  
Market Share ◽  
Commercial Banks ◽  
Banking Sector ◽  
Banking Industry ◽  
Developing Economies ◽  
Market Concentration ◽  
Bank Performance ◽  
Content Type

Purpose – The purpose of this paper is to test market structure-performance hypothesis in banking industry in Kenya. Specifically, the structure-conduct-performance (SCP) and market efficiency hypotheses were examined to determine how market concentration and efficiency affect bank performance in Kenya. Design/methodology/approach – The study used secondary data of 44 commercial banks operating from 2000 to 2009. Three proxies to measure bank performance were used while market concentration and market share were used as proxies for market structure. Market concentration was measured using two concentration measures; the concentration ratio of the four largest banks (CR4) and Herfindahl-Hirschman Index, while market share was used as a proxy for efficiency. The study made use of generalized least square regression method. Findings – The empirical results confirm that market efficiency hypothesis is a predictor of firm performance in the banking sector in Kenya and rejects the traditional SCP hypothesis. Thus, the results support the view that efficient banks maximize profitability. Practical implications – The study provides insights into the role of efficiency in enhancing profitability in commercial banks in Kenya. It has managerial implication that profitable banks ought to be efficient and dispels the notion of collusive behavior as a precursor for profitability. Originality/value – The paper fills an important gap in the extant literature by proving insights into what determines bank profitability in banking sector in Kenya. Although this area is rich in research, little work has been conducted in the developing economies and in particular no study in the knowledge has addressed this critical issue in Kenya.

scholarly journals Market structure and performance of Malaysian banking industry

2016 ◽  
Vol 14 (2) ◽  
pp. 158-177 ◽  
Author(s):  
Rossazana Ab-Rahim ◽  
Sheen Nie Chiang
Keyword(s):  
Financial Performance ◽  
Market Structure ◽  
Commercial Banks ◽  
Banking Sector ◽  
Banking Industry ◽  
Least Squares Method ◽  
Efficient Frontier ◽  
Market Concentration ◽  
Content Type ◽  
Net Interest Margin

Purpose The main purpose of this paper is to examine the relationship between the market structure and financial performance of Malaysian commercial banks over the period of 2000 to 2011 by testing the structure-conduct-performance (SCP) and efficient-structure (ESH) hypotheses. Design/methodology/approach Data envelopment analysis (DEA) is employed to measure the efficiency of banks, while concentration ratio is used to assess the market structure of Malaysian banks. Next, utilizing the least squares method, both variables – market structure and efficiency of banks – among other explanatory variables (market share, operating expenses, loans ratio and size of banks) are regressed upon the dependent variable, namely financial performance of banks represented by return on asset (ROA), return on equity (ROE) and net interest margin (NIMTA). Findings The concentration of Malaysian banking industry is at a declining trend; structurally speaking, Malaysian banks are more competitive due to less market concentration. In terms of efficiency, the DEA results reveal that Malaysian banks are operating below their capacity at 40 per cent of efficiency. Thus, Malaysian banks could reduce their utilization of inputs by 60 per cent to operate on the efficient frontier. Next, the results offer support to ESH, which implies that market concentration and banking efficiency determines the profitability performance of Malaysian commercial banks. Originality/value Past studies on Malaysian banking sector had tended to focus either on measuring the performance or assessing the market structure of banks. Thus, this study attempts to fill the gap in the literature by testing the nexus between the market structure and the performance of banks.

Market structure, strategic choices and bank performance: a path model

2014 ◽  
Vol 40 (6) ◽  
pp. 538-564 ◽  
Author(s):  
Samir Belkhaoui ◽  
Lassaad Lakhal ◽  
Faten Lakhal ◽  
Slaheddine Hellara
Keyword(s):  
Market Structure ◽  
Path Analysis ◽  
Conceptual Model ◽  
Market Share ◽  
Indirect Effect ◽  
Commercial Banks ◽  
Strategic Choice ◽  
Bank Performance ◽  
Analysis Method ◽  
Content Type

Purpose – The purpose of this paper is to develop and test a conceptual model of bank performance. Design/methodology/approach – The papers build a system of causal relationships between market structure, strategic choice and bank performance using the path analysis method. The sample includes commercial banks from 11 emerging countries. Findings – Results show that market structure has a positive and indirect effect on bank performance, and that market share has a positive and direct effect on bank performance. Strategic variables related to risk taking and diversification affect directly and indirectly bank performance. The indirect effect occurs via market share. The results suggest that the mediating role played by the strategic choice in the relationship between market structure and performance is complete. Originality/value – The contribution of this paper is threefold. The first one is to develop a conceptual model to explain bank performance. The model includes simultaneously direct and indirect causal relationships between market structure, strategic choice and bank performance. The second one is the use of the path analysis method to estimate the direct and indirect relationships. The third one is related to the sample including commercial banks in emerging markets.

Stability in the banking industry and commodity price volatility: perspective from developing economies

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Rexford Abaidoo ◽  
Elvis Kwame Agyapong ◽  
Kwame Fosu Boateng
Keyword(s):  
Banking Sector ◽  
Banking Industry ◽  
Developing Economies ◽  
Generalized Method Of Moments ◽  
Price Volatility ◽  
Commodity Price ◽  
Capital Adequacy ◽  
Bank Stability ◽  
Content Type ◽  
Commodity Price Volatility

PurposeThis paper aims to examine the effect of volatility in prices of internationally traded commodities (the backbone of most economies) on the stability of the banking industry from three main perspectives; bank liquidity reserves, overall bank risk and bank capital adequacy.Design/methodology/approachData were compiled from various sources for 30 emerging economies from 2002 to 2018 and were analyzed using the two-step system generalized method of moments estimation technique.FindingsThe study finds that all things being equal, the magnitude and direction of impact of commodity price volatility on bank stability among economies in Sub-Saharan African (SSA) depend on the type and nature of the commodity in question; and the bank stability proxy used. For instance, an increase in crude oil prices is found to foster stability in the banking industry (proxied by bank liquid reserves) but insignificant when stability in the banking industry is proxied using other banking sector parameters. Additionally, government effectiveness and corruption control have varying moderating influences on how volatility associated with prices of internationally traded commodities influence various proxies for banking industry stability.Originality/valueThis study highlights the effect of fluctuations in prices of key internationally traded commodities (adjusted for foreign exchange impact) that are important sources of revenue among economies in SSA on banking sector stability from liquidity, overall risk and capital adequacy perspectives. The influential role of governance in the relationship between volatility in the price of commodities and bank stability is also revealed by the study.

Determinants of non-performing loans in banking sector in small developing island states

2018 ◽  
Vol 31 (2) ◽  
pp. 192-213 ◽  
Author(s):  
Ronald Ravinesh Kumar ◽  
Peter Josef Stauvermann ◽  
Arvind Patel ◽  
Selvin Sanil Prasad
Keyword(s):  
Developing Countries ◽  
Market Share ◽  
Banking Sector ◽  
Global Financial Crisis ◽  
Developing Economies ◽  
Equity Capital ◽  
Capital Adequacy ◽  
Real Effective Exchange Rate ◽  
Content Type ◽  
Specific Factors

PurposeThe banking sector stability depends in large part on the size of non-performing loans (NPLs). Hence, the factors which explain the problem loans are very useful information for banks. Notably, studies in this regard with respect to the small developing countries’ banking sector have received less attention. Therefore, this study aims to examine the determinants of NPLs with a case of Fiji’s banking sector, over the period 2000-2013.Design/methodology/approachThe balanced sample consists of the entire banking sector (five commercial banks and two non-bank financial institutions). First, the authors estimate a base model which comprise bank-specific indicators that are related to bank management and then they extend the estimations to include macroeconomic/structural factors such as economic growth, inflation, changes of the real effective exchange rate, unemployment, remittances, political instability and external events like the global financial crisis. The estimations are done using pooled OLS, the random effects and the fixed effects regression methods.FindingsThe results show that the following indicators have negative association with NPL and are statistically significant with the conventional levels: return on equity, capital adequacy requirement, market share based on assets, unemployment and time. On the other hand, the net interest margin has a positive and statistically significant association with NPL.Research limitations/implicationsSubsequently, the stability of the banking sector in small developing countries such as Fiji is largely dependent on banks’ profitability, solvency, size in terms of market share and the presence of a learning curve and keeping a close tab on the interest rate spread between loans and deposits.Practical implicationsThe paper highlights the specific factors determining NPL in small developing economy of Fiji.Originality/valueThis study is the first to examine specific factors determining NPLs with respect to small developing economies in the Oceania region.

How monetary policies and ownership structure affect bank supply chain efficiency: a DEA-based case study

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Yelin Hu ◽  
Bingjing Li ◽  
Ying Zha ◽  
Douqing Zhang
Keyword(s):  
Supply Chain ◽  
Ownership Structure ◽  
Commercial Banks ◽  
Banking Industry ◽  
Operating Efficiency ◽  
Bank Performance ◽  
Monetary Policies ◽  
Content Type ◽  
Dea Model ◽  
Supply Chain Efficiency

PurposeThe banking industry plays a key role in China's financial industry. In the past decade, the speed of the development of China's commercial banks has gradually declined. Commercial banks with different ownership structures also have certain differences in terms of operating efficiency, and their monetary policies are often different. Therefore, the authors study the impact of ownership structure on the efficiency of commercial banks under different monetary policies. This study also provides relevant reference opinions with regard to the healthy, sustainable and stable development of China's banking industry.Design/methodology/approachThis paper mainly uses the two-stage data envelope analysis (DEA) model under meta-frontier and group frontier to study the deposit and loan efficiency changes of 16 banks from 2007 to 2014 under ownership structure heterogeneity. Furthermore, the model introduces the balance parameters between deposits and loans, in order to realize the mathematical abstraction description of macro-monetary policy.FindingsFirst, based on bank efficiency analysis, the paper finds that most banks' loan efficiency is higher than their deposits. Second, the paper concludes that different monetary policies have little effect on bank deposit and loan efficiency, while ownership heterogeneity has a significant impact on bank performance. Finally, through the decomposition of the sources of inefficiency in bank performance, this paper finds that management and technology are two factors that affect the inefficiency of banks.Originality/valueThe authors work contributes to the existing literature in the following ways: First, to the best of the authors’ knowledge, this is the first attempt to use the DEA model to study the relationship between monetary policies and bank supply chain efficiency. The results may provide additional managerial implications for the banking industry from the perspective of monetary policies. The result is helpful in terms of explaining how and why banks should strengthen risk management, as well as how to deal with non-performing loans in management terms and finally, why banks should make financial technology innovations in technology terms.

scholarly journals Analysis of Factors Affecting Performance of Vietnamese Commercial Banks: Testing SCP and ES Hypotheses

2014 ◽  
Vol 219 ◽  
pp. 81-92
Author(s):  
HIỀN PHAN THU ◽  
HẠNH PHAN THỊ MỸ
Keyword(s):  
Sustainable Development ◽  
Market Share ◽  
Commercial Banks ◽  
Inflation Rate ◽  
Market Concentration ◽  
Total Asset ◽  
Bank Performance ◽  
Factors Affecting ◽  
Positive Effects ◽  
Factors Affecting Performance

The research aims at analyzing factors impacting on performance of Vietnamese commercial banks in the years 2005-2012. The authors test SCP (structure-conduct-performance) and ES (efficient structure) paradigms for factors affecting return ratios of banks. The results show that it is market concentration instead of market share that has positive effects on bank performance as shown in their return on average assets (ROAA) and return on average equity assets (ROAE). Additionally, bank size, ownership, ratio of deposit to total asset and inflation rate also produce effects on performance of commercial banks in Vietnam. These findings allow authors to offer some measures to support a sustainable development for Vietnamese commercial banks.

scholarly journals Competition and Concentration in Bangladeshi Banking Sector

2016 ◽  
Vol 5 (1) ◽  
pp. 16-29
Author(s):  
Anwar Hossain Repon ◽  
Zahidul Islam
Keyword(s):  
Market Structure ◽  
Concentration Ratio ◽  
Banking Sector ◽  
Monopolistic Competition ◽  
Banking Industry ◽  
Market Concentration ◽  
Sample Period ◽  
Banking Competition ◽  
The Past ◽  
Bank Concentration

The purpose of this paper is to investigate the market structure and degree of concentration of Bangladeshi banking industry. The study measured market concentration by using widely recognized measures like k-bank concentration ratio and Herfindahl-Hirchman Index (HHI). It evaluates market structure by applying Panzar-Rosse Model over 8 years period from 2006 to 2013. The result of concentration measures indicates a decreasing trend and low level of market concentration in Bangladeshi banking industry over the sample period. The panzer-Rosse “H-Statistic” suggests that banks in Bangladesh are operating under monopolistic competition. Present paper contributes to a burgeoning literature on banking competition that has evolved significantly over the past periods on a developing country perspective like Bangladesh.

Quiet life hypothesis reborn: is “holdinglisation” relevant?

2019 ◽  
Vol 45 (2) ◽  
pp. 278-293 ◽  
Author(s):  
Maria Christina Liem
Keyword(s):  
Market Power ◽  
Market Share ◽  
Commercial Banks ◽  
Banking Industry ◽  
Least Square ◽  
Content Type ◽  
Indonesian Government ◽  
Financial Failure ◽  
Conventional Banks ◽  
The Impact

Purpose Quiet life hypothesis (QLH) states that banks with a higher market power will generate high profitability quietly, even though it could cause inefficiency. In the long term, it could turn a high profitability into a lower future profitability. This paper identifies QLH-reborn through the holdinglisation strategy of the Indonesian Government to include all state-owned banks into one holding, hence increasing the market power of Indonesian state-owned banks within ASEAN. Optimum profitability and optimum efficiency are the objectives of the “holdinglisation” idea. Therefore, the purpose of this paper is to analyse the relevance of holdinglisation within the Indonesian banking industry. Design/methodology/approach This paper focusses on analysing the efficiency and soundness of four state-owned conventional banks and four state-owned Islamic banks in Indonesia during 2011–2015. Subsequently, this paper analyses the impact of bank effectiveness index and soundness rank on return on average asset (ROAA) and ROAE through the data panel of general least square regression using STATA. Findings This paper shows that all state-owned commercial banks in Indonesia during 2011–2015 are efficient and sound. Furthermore, this paper finds that market power (market share for deposit and market share for loans) has an insignificant impact on bank efficiency (BE) index, bank soundness rating, ROAA and EM. Meanwhile, BE index and BS rating have a significant impact on ROAA. Therefore, this paper concludes that holdinglisation regulation as QLH-reborn is irrelevant for Indonesian state-owned banks at this moment. Research limitations/implications This paper has a crucial limitation. Holdinglisation as QLH-reborn is irrelevant under the condition that all state-owned commercial banks in Indonesia are efficient and sound. Moreover, this paper contributes another actual empirical study of QLH. Practical implications This paper represents a scientific argumentation towards a holdinglisation strategy of state-owned commercial banks in Indonesia. Therefore, this paper could be a scientific reference for the Indonesian Government to improve Indonesian state-owned commercial banks competitiveness in ASEAN. Originality/value This paper is urgently needed for the Indonesian banking industry because the Indonesian Government should consider the drawbacks of holdinglisation as QLH reborn to the Indonesian banking industry, such as inefficiency and the risks of financial failure. Moreover, if the bank experiences financial failure, it could have a detrimental and lasting effect on the country’s macroeconomic condition.

scholarly journals PENGARUH KONSENTRASI STRUKTUR PASAR TERHADAP KINERJA INDUSTRI KOMERSIAL PERBANKAN DI INDONESIA PERIODE TAHUN 2007 - 2011

2020 ◽  
Vol 2 (4) ◽  
Author(s):  
Mr Rofanov
Keyword(s):  
Market Structure ◽  
Market Share ◽  
Commercial Banks ◽  
Concentration Ratio ◽  
Banking Industry ◽  
Capital Adequacy ◽  
Return On Assets ◽  
Net Interest Margin ◽  
Banking Market ◽  
Capital Adequacy Ratio

Based on the ratio of market share of 11 commercial banks discovered the phenomenon gap of the period 2007-2011 where 11 commercial banks dominate the banking market predominantly in Indonesia, including four state-owned banks. This phenomenon has resulted in the banking market structure tends to form an oligopoly, it is obviously affecting the behavior of banks that have a dominant position to maintain supernormal profit, which is reluctant to extend credit with low interest tribes and not a reflection of efficient behavior that ultimately lead to the real sector can not run role in the economy because of factors hampered financing. And with the market conditions are 11 commercial banks were so dominant, which is feared if one bank's collapse could affect the performance of banks in a systemic and even disrupt the Indonesian economy in general. The objectives of this research to determine the form of the banking market structure and analize the influence of concentration market structure and Capital Adequacy Ratio (CAR), Non Performing Loan (NPL), Net Interest Margin (NIM), and Loan to Deposit Ratio (LDR) to Return on Asset (ROA) wich is as a proxy of Financial Performance Banking in 2007 until 2011 periods. The data in this study was collected from Indonesian Banking Directory of 2007-2011. The collected sample was 11 biggest commercial banks over the period from 2007-2011. The analysis model  was used to determine the shape of banking market structure by using CR4 concentration ratio (Four Concentration Ratio) on a share of the assets, the share of third-party funding (DPK) and the share of loans, that produce banking that shaped the oligopoly market structure moderate low or concentration oligopoly level IV, where four largest banks a dominate about 42% - 50% market share. The estimation of the Fixed Effect Model unknown  that concentration market, market share, Capital Adequacy Ratio (CAR), Net Interest Margin (NIM) and the Loan to Deposit Ratio (LDR) has a positive effect on profitability (Return on Assets ) as a proxy for the performance of the banking industry. And for the  Non Performing Loan (NPL) has a negatively effect on profitability (Return on Assets) as a proxy for the performance of the banking industry.

scholarly journals Forign Ownership and Bank Performance: Evidence From Indonesia

2017 ◽  
Vol 8 (1) ◽  
Author(s):  
Amarilla Hapsari ◽  
Rofikoh Rokhim
Keyword(s):  
Commercial Banks ◽  
Banking Sector ◽  
Banking Industry ◽  
Positive Impact ◽  
Bank Performance ◽  
Industrialized Countries ◽  
Foreign Investors ◽  
Banking Market ◽  
The Government ◽  
The Impact

The main objective of this study is to examine the impact of foreign entry on the domestic bank-ing market’s profitability and overhead costs as financial sector FDI is a relatively new phenom-enon and typically takes the form of banks in industrialized countries establishing branches and facilities in developing countries. A panel data covering the period from 2000 to 2012 is set based on the financial data from 82 commercial banks, which operated in Indonesia as of De-cember 2012 and represented 92 percent of the commercial banks’ total assets. The results of this study are expected to complement the existing collection of studies on the foreign penetra-tion in the Indonesian banking industry, as to date there has been limited study of the impact of foreign ownership on bank performance in Indonesia. From a policy perspective, this study draws some conclusions which clarify the impacts of foreign penetration on banking industry. The government should continue to open the banking market up to foreign investors if they are proven to bring a positive impact, and should act conversely if they are proven to have an adverse impact on the local banking sector.

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