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Bank market power and its determinants: evidence from listed conventional commercial banks from Indonesia

Suman Das (Department of Commerce, North Eastern Hill University, Shillong, India)
Ambika Prasad Pati (Department of Commerce, North Eastern Hill University, Shillong, India)

Journal of Economic and Administrative Sciences

ISSN: 2054-6238

Article publication date: 19 November 2024

62

Abstract

Purpose

Over the past three decades, financial deregulation and various reforms have significantly transformed the competitive environment for banks in Indonesia. These changes have introduced new challenges for banks to retain their market power and ensure their survival. In light of this, the article aims to assess the current levels of market power held by Indonesian banks and explore the factors that influence it.

Design/methodology/approach

The paper measured the degree of market power and identified its impacting factors for 22 listed commercial banks using the Adjusted Lerner Index (ALI) and appropriate regression technique over a period of 2011–2023.

Findings

The empirical findings reveal that banks in Indonesia enjoy high market power, and factors such as capitalization, diversification, operational inefficiency, asset quality and GDP growth rate significantly impact banks’ market power. Additionally, the findings contradict the structure-conduct-performance paradigm, which advocates that a concentrated banking system impairs competition.

Research limitations/implications

The study suggests that regulatory authorities should closely monitor the market power levels and promote strategies to enhance competition within the banking sector. Additionally, banks should prioritize implementing measures to reduce operational costs and improve the quality of assets.

Originality/value

This research represents one of the early attempts to gauge the market power of publicly listed conventional commercial banks in Indonesia by employing the Adjusted Lerner Index. Additionally, it introduces “technology adoption” as a novel variable to the analysis alongside other established variables.

Keywords

Citation

Das, S. and Pati, A.P. (2024), "Bank market power and its determinants: evidence from listed conventional commercial banks from Indonesia", Journal of Economic and Administrative Sciences, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JEAS-04-2024-0106

Publisher

:

Emerald Publishing Limited

Copyright © 2024, Emerald Publishing Limited

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