An empirical analysis of the structure-performance relationship in the Philippine commercial banking industry, 1990-2005

• Main Author: Gloriani, Mark Gregore G.
• Format: text
• Language: English
• Published: Animo Repository 2006
• Subjects: Banks and banking > Philippines; Bank profits > Philippines; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/18359
• Institution: De La Salle University

The objective of this paper is to empirically test the applicability of the structure-performance hypothesis in the Philippine commercial banking industry. The analysis is drawn upon a balanced panel data set collected from sixteen commercial banks over the period 1990 to 2005. Using a bank profitability model grounded on existing literature, the researcher finds that the structure-performance relationship does not exist in the Philippine commercial banking industry. Neither individual market shares nor indices of market concentration affect the profitability of banks significantly. Empirical evidence however is found for the efficient structure hypothesis. The results indicate that total assets turnover, a widely used measure of bank efficiency, positively impacts bank profitability. The other factors that affect bank profitability positively include bank growth, capital adequacy, and reliance on demand deposits. The occurence of the Asian financial crisis exerted a significant downward pressure on bank profitability. Non empirical relationship is established for bank size, bank risk, and loan-to-asset ratio. Based on the findings, a strategy like entering the industry as a big player with strong brand identification or forming a mega-banking institution through a merger or consolidation will not necessarily work in the Philippines. To achieve a higher level of profitability, banks have to focus their attention to improving their operational efficiency. Therefore, Bangko Sentral ng Pilipinas should adopt a regulatory and supervisory framework geared at improving the efficiency of commercial banks in the Philippines.