Consolidation of the Banking Sector: Determinants and Consequences

The article aims at substantiating the theoretical and methodological foundations of research in bank consolidation and assessing its consequences in order to identify the relationship between consolidation and the banking market structure. The main preconditions and priorities of consolidation are systematized and generalized, taking into account the theory of financial integration and synergetic interaction. This approach will contribute to deeper understanding of the motives and trends of consolidation in modern conditions. It is noted that the transnationalization and concentration of capital form the basis for market consolidation, which goes through a certain life cycle, the latter being specified by the authors. It is concluded that the universal, integrated nature of financial business and the formation of financial business ecosystems is becoming more widespread. The main changes in financial mediation are identified. Statistics of banking concentration in Ukraine is given. The dynamics of concentration ratio for the period from January 1, 2000 to August 1, 2020 was analyzed, revealing that the market is moderately concentrated. It is stipulated that the higher the combined share of the five major banks in the banking sector, the less likely a domestic merger and acquisition is. Accordingly, the domestic banking market, compared to European ones, has significant potential. It is concluded that the high values of profitability indicators speak of excess demand over supply in the banking market; thus, competitive intensity under such conditions is minimal, even with the withdrawal of most banks from the market. Thus, competition is only declared. In the future, we should expect increased non-interest rate competition. It is noted that competitive intensity depends on the concentration, dynamics and profitability of the banking market. Competition assessment, carried out using non-structural measures, H-statistics, Boone indicators and Lerner index, showed that, since the an individual bank does not build up its range of activity through consolidation, or by redistributing its market share among participants, but due to the growing demand for banking services, and remote services in particular, competition is actually reduced. The research confirmed that the processes of concentration, consolidation and competition are interconnected, and this connection should be identified to better understand the formation of the banks’ functional strategy and their choice of the business model.

BANKING IN THE CONTEXT OF FINANCIAL GLOBALIZATION

Introduction. Financial globalization has facilitated the process of banking concentration and has transformed transnational banks into universal, powerful banking complexes. Within them, the boundaries between commercial banks, investment banks, insurance and other financial institutions are gradually becoming blurred. Developed countries have traditionally been at the forefront of domestic financial, banking systems that move money from one sphere to another. The developed culture of capital accumulation has allowed powerful banks from developed countries to form a significant passive base for long-term and capital-intensive processes, ensuring the activities of leading TNCs. The purpose of the study is to identify changes in modern banking in the context of financial globalization. Method. In the process of writing the article used general scientific and special methods: generalization, analysis and synthesis, system approach. Results. The article provides a comprehensive description of trends in international banking activity. The activity of the world’s largest banks has been analyzed. Attention is paid to the main factors that influence the volume and direction of bank flows. It has been shown that in the current stage of economic development, banks are moving to new business strategies to maintain competitive positions. The article reveals the main forces that determine the transition to new banking business strategies. The impact of digital opportunities and networks on banking activity has been identified.

BANKING CONCENTRATION AND FINANCIAL CRISES

Policymakers need to know if the structure of competition and the degree of banking market concentration change the incidence of financial crises. Previous studies have not always come to clear conclusions. We use a new dataset of 19 countries where we include capital adequacy and house price growth as factors affecting crisis incidence, and we find a positive role for bank concentration in reducing incidence. In addition, we look at New Industrial Economics indicators of market structure and find that increased market power also reduces crisis incidence. We conclude that attempts to increase competition in banking, although welcome for welfare reasons, should be accompanied by increases in capital standards.

What is the effect of banking concentration and competition on financial development? An international assessment

PurposeThis paper analyzes the effect of the banking market (concentration and competition) on financial development.Design/methodology/approachIn order to estimate the effects of banking concentration and competition on financial development, we conducted an empirical analysis using the System Generalized Method of Moments (S-GMM) through a dynamic panel data model.FindingsThe main results suggest that concentration and competition affect financial development. In particular, an increase in bank concentration may inhibit the country's financial development, due to the lack of competition. Our results do not confirm the controversy between concentration and competition, suggesting that concerning financial development, concentration is the reverse of competition.Practical implicationsThe results of this study add a new perspective on banking market power: a financial system concentrated or uncompetitive constrains financial development.Originality/valueThe literature that combines the investigation of the effects of banking market structure (concentration) and banking market conduct (competition) on financial development is scarce. Although a concentrated banking sector can reduce competition through barriers to new entrants (which could expand financial services offer), it is also true that a concentrated banking sector can be competitive. In order to avoid the controversy, our paper chooses to look into a comprehensive approach considering independent measures of bank concentration and bank competition, which together refer to the banking framework.

Banking concentration and financial development in the MENA region

Purpose Bank consolidations in many Middle East and North Africa (MENA) countries have been proceeding at a rapid pace, leading to a decline in the number of banks and an increase in market concentration. This may raise concerns regarding the impact of such increase in concentration on the behaviour of banks and consequently on the financial development. Therefore, this study aims to examine the impact of concentration on the financial development of MENA region. Design/methodology/approach The study adopts fully modified ordinary least squares model on a heterogeneous, non-stationary, cointegrated panel data set. The exploited panel is formed of 15 MENA countries and covers the period 1996–2014. Findings The empirical results show that concentration per se is not harmful for financial development. Nevertheless, concentration combined with bank market power may deteriorate the development of MENA financial systems. Originality/value In addition to considering an understudied region, the research presents very important findings, which suggest that if banks obtain market power, an increase in concentration following a wave of bank mergers, could weaken the financial development.

CONCENTRAÇÃO BANCÁRIA: A OPA FALHADA DO BANCO BCP AO BANCO BPI, EM 2006, PORTUGAL / BANKING CONCENTRATION: THE FAILED TAKEOVER OF BCP BANK TO BANK BPI IN 2006, PORTUGAL

<p>As operações de concentração de instituições financeiras têm por objetivo, em geral, criar dimensão e oportunidades de ganhos resultantes das poupanças em custos e das sinergias geradas. O objetivo deste artigo é o de analisar as decisões estratégicas de concentração da oferta pública de aquisição do banco BCP ao banco BPI, cujo processo decorreu entre Março de 2006 até ao final de Novembro de 2007. A teoria subjacente a este tipo de operações, de carácter neoliberal e de cariz anglo-saxónico, defende haver ganhos de eficiência devido às economias de escala em organizações de maior dimensão, não considerando os aspetos comportamentais dos gestores. A análise dos dados recolhidos permite, através do estudo de caso, verificar as estratégias adotadas por cada instituição, os motivos que levaram à rejeição da proposta e a importância das entidades reguladoras neste processo. Os resultados fornecem uma base sólida para concluir que as decisões estratégicas do BPI foram mais fortes que as propostas do BCP, e as decisões tomadas pelos reguladores tiveram um peso importante no desfecho da operação, tendo penalizado a operação pela demora na resposta, ainda que os procedimentos existentes tendam a ser cada vez mais desburocratizados e autónomos. A conclusão tem por base uma reflexão sobre o tipo de estratégias adotadas por cada instituição envolvida e o impacto provocado por cada iniciativa.</p><p>The concentration operations of financial institutions aim, in general, to create dimension and earnings opportunities, which result from costs savings and from synergies generated by the new company. So on, it induces productivity and greater competitiveness. The purpose of this paper is to analyze the strategic decision of the takeover bid of BCP on BPI, a process that took place between Mar./2006 and the end of Nov./2007. The theory behind this type of operations has a neoliberal and Anglo-Saxon character, advocating the existence of efficiencies due to economies of scale in larger organizations, not considering the behavioral aspects of management. The analysis of the gathered data provides, through the case study, clues on the strategies adopted by each institution, the reasons that led to the rejection of the proposal and the importance of regulatory authorities in this process. The results provide a solid basis for concluding that the strategic decisions of BPI were stronger than the related decisions of the BCP, and the decisions taken by the regulators also had an important role in the outcome of the operation, although existing procedures tend to be increasingly unbureaucratic and independent. The conclusion is based on a reflection on the type of strategies adopted by each institution involved and the impact caused by each initiative.</p><p><strong>JEL: </strong>G21; G24; G34</p><p> </p><p><strong> Article visualizations:</strong></p><p><img src="/-counters-/lit/0135/a.php" alt="Hit counter" /></p><a href="https://doi.org/10.5281/zenodo.3887448"><img src="https://zenodo.org/badge/DOI/10.5281/zenodo.3887448.svg" alt="DOI" /></a>