The relationship between competition and banking stability: A study of listed commercial and universal banks in the Philippines for the period 1998-2007

• Main Authors: Co, Warner C., Perez, Peter
• Format: text
• Language: English
• Published: Animo Repository 2009
• Subjects: Banks and banking > Philippines; Economic stabilization > Philippines
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/17480
• Institution: De La Salle University

This paper aims to determine whether there is a positive or negative relationship between competition and banking stability in the Philippine setting. It will also try to determine the impact of increased competition on the banking stability of chosen banks. To measure financial stability among banks, the ratio of nonperforming loans, Z-index and capitalization ratio will be used as proxy for banking stability. To measure for competition in the banking industry, the Herfindahl-Hirschman index, with the bank's total loans and deposits as basis will be used. Using HHI deposits as measure of competition, results from the linear regression showed that competition does not affect the stability of banks for the period 1998-2007. On the other hand, by using HHI loans as measure of competition, results showed that competition does not affect the NPL ratios but at the same time, affects the z-index level and capitalization ratio of banks. In the case of multiple regression analysis, the researchers concluded that competition by using both HHI loans and deposits, does not affect banking stability as measured by the combination of NPL ratio, z-index and capitalization ratio.