BANK COMPETITION AND PROFITABILITY IN SOUTH EAST ASIA

• Main Author: Yahya, Bezaleel
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/62469
• Institution: Institut Teknologi Bandung

Traditional structure-conduct-performance (SCP) paradigm views profitability that comes from concentrated market as a sign of collusion, which burdens customer and hinders innovation, among other things. Using bank-level data for periods 2010-2019, this study investigates the effect of competition and bank profitability in six South East Asian countries (Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam). The investigation is conducted by applying Panzar and Rosse (1987) methodology to characterize the competitive environment in South East Asian banking sector and followed by examination of profitability and market structure relations to determine variables that affect bank profitability. The result indicate Singapore to be highly concentrated and at times have monopoly environment, while the other five observed countries are less concentrated and have monopolistic competition. Investigation of bank profitability relationship shows market power and market concentration have no positive significant impact on bank profitability. The effect of bank-level variables have more significance on bank profitability, although impacting variables differ for different South East Asian banking markets. Heterogeneity in different market may come as a response by banks in different domestic market condition. Overall, these results suggest bank management and scale efficiency have more impact on profitability then market structure. However, policymakers that aims for ASEAN banking integration will face difficult challenge from heterogeneity of market environment and bank-level variables affecting their profitability