Market concentration and bank competition in emerging Asian countries over pre and post the 2008 Global Financial Crisis

This paper examines the relationships between market concentration, bank competition, and efficiency in banking across six emerging Asian countries namely Bangladesh, India, Indonesia, Malaysia, the Philippines and Vietnam over the period 2005 to 2012. The countries selected for this study operate commercial banking activities with a comparatively large number of both publicly listed and private commercial banks providing a broad range of commercial banking services. For example, banks in Bangladesh, India and Vietnam used to be predominantly state-owned. But over the last few decades, governments have been issuing licenses to private owners. The methodological approach taken by our study provides an important and original contribution to the extant literature by testing various hypothesis that investigate the relationship between competition and efficiency across banks from a select group of Asian countries. We find that market concentration has a positive effect whereas competition has a negative effect on the efficiency of banks operating in these countries. This finding conveys a critically important message to the regulators of banks in these countries: there is a trade-off between quantity and quality. Our analyses also reveal that the effect of bank size on efficiency is positive whereas the effect of liquidity risk on efficiency is negative. This again supports the conventional wisdom that large banks are in a position to provide cost efficient services because they have the ability to attain economies of scale and scopes. Here again, the regulators have very important roles to play: while they have to put in place effective mechanism preventing big banks from being an oligarchy; at the same time, they should make sure that banks get liquidity support as funding pressure builds up.