Search results

This study investigates the role of market concentration and efficiency in banking system stability during the COVID-19 pandemic. We empirically test the hypothesis that market concentration and efficiency are significant determinants of bank performance and stability during the time of crises, using a sample of 575 banks in 20 countries in the Middle East and North Africa (MENA).

The main sources of bank data are the BankScope and BankFocus (Bureau van Dijk) databases, World Bank development indicators, and official websites of banks in MENA countries. This study combined descriptive and analytical approaches. We utilize a panel dataset and adopt panel data econometric techniques such as fixed/random effects and the Generalized Method of Moments (GMM) estimator.

The results reveal that market concentration negatively affects bank profitability, whereas improved efficiency further enhances bank performance and contributes to the banking sector’s overall stability. Furthermore, our analysis indicates that during the COVID-19 pandemic, bank stability strongly depended on the level of market concentration, but not on bank efficiency. However, more efficient banks are more profitable and stable if the banking institutions are Islamic. Similarly, Islamic banks with the same level of efficiency demonstrated better overall financial performance during the pandemic than their conventional peers did.

The main limitation is related to the period of COVID-19 pandemic that was covered in this paper (2020–2021). Therefore, further investigation of the COVID-19 effects on bank profitability and risk will require an extended period of the pandemic crisis, including 2022.

This study provides information that will enable bank managers and policymakers in MENA countries to assess the growing impact of market concentration and efficiency on the banking sector stability. It also helps them in formulating suitable strategies to mitigate the adverse consequences of the COVID-19 pandemic. Our recommendations are useful guides for policymakers and regulators in countries where Islamic and conventional banking systems co-exist and compete, based on different business models and risk management practices.

The authors contribute to the banking stability literature by investigating the role of market concentration and efficiency as the main determinants of bank performance and stability during the COVID-19 pandemic. This study is the first to analyze banking sector stability in the MENA region, using both individual and risk-adjusted aggregated performance measures.

Academic research has intensively analyzed the relationship between market concentration or market power and banking stability but provides ambiguous results, which are summarized under the concentration-stability/fragility view. We provide empirical evidence that the mixed results are due to the difficulty of identifying reliable variables to measure concentration and market power.

Using data from 3,943 banks operating in the European Union (EU)-15 between 2013 and 2020, we employ linear regression models on panel data. Banking market concentration is measured by the Herfindahl–Hirschman Index (HHI), and market power is estimated by the product-specific Lerner Indices for the loan and deposit market, respectively.

Our analysis reveals a significantly stability-decreasing impact of market concentration (HHI) and a significantly stability-increasing effect of market power (Lerner Indices). In addition, we provide evidence for a weak (or even absent) empirical relationship between the (non)structural measures, challenging the validity of the structure-conduct-performance (SCP) paradigm. Our baseline findings remain robust, especially when controlling for a likely reverse causality.

Our results suggest that the HHI may reflect other factors beyond market power that influence banking stability. Thus, banking supervisors and competition authorities should investigate market concentration and market power simultaneously while considering their joint impact on banking stability.

Keeping in view the robust growth of Islamic banking around the globe, this study aims to comparatively analyze the association between liquidity creation and liquidity risk for Islamic banks (IBANs) and conventional banks (CBANs) in Pakistan and Malaysia over a period of 2004–2021. The moderating role of bank loan concentration on the aforementioned relationship is also studied.

Regression estimation methods such as fixed effect, random effect and generalized least square are deployed for obtaining results. Liquidity creation Burger Bouwman measure (cat fat and noncat fat) and Basel-III liquidity risk measure (liquidity coverage ratio) are also used.

The results give us insight that liquidity creation is positively and significantly related to liquidity risk in both IBANs and CBANs of Pakistan and Malaysia. This relationship has been moderated negatively (reversed) and significantly by credit concentration showing the importance of risk management and loan portfolio concentration.

It is analyzed that during the process of liquidity creation, IBANs in Pakistan faced more liquidity risk for both on and off-balance sheet transactions in the presence of moderation of loan concentration than IBANs in Malaysia necessitating strategic policy-making for important aspects of liquidity risk management and loan concentration while creating liquidity.

Such studies comparing IBANs and CBANs comparison keeping in view liquidity creation, liquidity risk and loan concentration are either limited or nonexistent.

The study investigates the impact of competition and concentration on bank risk-taking behavior and stability in the South Asian Association for Regional Cooperation (SAARC) region.

Data from 100 banks from 2013 to 2021 was analyzed using dynamic and static measures by using dynamic system GMM.

Results showed that higher competition reduces stability, while concentration in the banking sector produces stability and reduces risk-taking behavior. The findings suggest that regulatory agencies should take different actions based on the degree of banking market concentration to enhance banking sector stability in the SAARC area.

The research helps regulators and decision-makers establish capital requirements at levels that would prevent banks from increasing their risk-taking in order to boost profits and, therefore, reduces hazardous practices that might increase the risk.

The research helps establish capital requirements to prevent banks from increasing risk-taking to boost profits and avoid hazardous practices that could increase nonperforming loans and bank failure risks.

This paper investigates the effect of financial development on bank profitability. The authors examine whether financial development is an important determinant of bank profitability.

The ordinary least square and the generalized method of moments regression methods were used to analyze the impact of financial development on the profitability of the Nigerian banking sector.

The authors find a significant negative relationship between the financial system deposits to GDP ratio and the non-interest income of Nigerian banks. This indicates that higher financial system deposits to GDP depresses the non-interest income of Nigerian banks. The result implies that the larger the size of the Nigerian financial system, the lower the profitability of banks in Nigeria. Also, the authors observe that bank concentration, nonperforming loans, cost efficiency and the level of inflation are significant determinants of the profitability of Nigerian banks.

It is recommended that regulators should establish market-enabling policies that encourage new banks to emerge in the banking industry. The entry of new banks can lead to increase in financial system deposits and credit supply for economic growth. Regulators also need to understand the role of Nigerian banks in promoting financial development and find ways to collaborate with banks towards financial sector development. Another implication of the findings for asset managers is that asset managers will need to take into account the prevailing level of financial development, particularly the size of the financial system, in their asset pricing and investment decisions. This will ensure that investors get value for their investments in Nigeria. The financial implication of the study is that the level of financial development in Nigeria can improve the finance-growth linkages in Nigeria through the efficient allocation of credit and capital to crucial sectors of the Nigerian economy to spur growth in those sectors.

Evidence dealing with how financial development affects the profitability of the banking sector in African countries is scarce in the literature, and is completely absent for Nigeria. This paper addresses this research gap.

This study provides a bibliometric analysis of bank efficiency and competition over the past years (from 1993 to 2022) to (1) discover the past and current state of knowledge on bank competition and efficiency, (2) identify leading and authoritative journals and scholars who made significant contributions to the distribution of knowledge and impact, (3) identify nations that made a significant contribution and impact to the literature and (4) identify the structure of collaboration that exists between scholars in the areas of bank competition and efficiency and key thematic areas.

A total number of 868 documents made up of articles, reviews, book chapters, book and conference papers from the Scopus database were gathered. This study used a bibliometric analytic approach.

The number of documents on bank competitiveness and efficiency has increased significantly, as have their total publications, citations and national output. Additionally, the most esteemed and prestigious academic journals of eminent academics who have had a significant impact on the dissemination of knowledge on bank efficiency and competition literature champion papers on banking efficiency and competition. In terms of citation performance and collaborative efforts, the United States tops the developed countries, led by China, which is also the most productive. Additionally, single-country publications predominate in the literature, with China ranking first among the top five countries with corresponding authors. While the Lerner index, H-statistic, concentration index and market power were used to measure bank competitive behaviour, the data envelopment analysis approach predominates efficiency estimation techniques that are linked to cost, profit or revenue, scale, technical and productivity indexes.

This study is one of the first to offer bibliometric evidence of both bank competition and efficiency. It also offers proof of the distribution of knowledge and intellectual structure of the concepts and concerns in bank competition and efficiency.

This study aims to evaluate the interaction between bank capital and explicit deposit insurance scheme (DIS) on the financial stability of Islamic and conventional banks.

The author's sample covers 52 Islamic and 108 conventional banks operating in 12 countries over the period 2000–2021 using the random-effects generalized least squares (RE-GLS) regression technique.

The author's results reveal that bank capital negatively mediates the relationship between explicit DIS and the financial stability of both Islamic and conventional banks. Additionally, explicit DIS has a positive impact on the financial stability of conventional banks. However, the results are mixed for Islamic banks, as the effect of explicit DIS is positive for the Middle East and North Africa (MENA) region but negative for the South and Southeast Asia (SSA) region. Finally, the interaction between explicit DIS and the COVID-19 pandemic has a negative effect on conventional banks operating in the MENA region, while it has a positive effect on Islamic banks operating in the SSA region.

The findings of this paper have important implications for regulators in evaluating DIS policies and in anticipating any potential adverse consequences that might arise for both Islamic and conventional banks in normal and crisis times. Policymakers should strive to preserve the benefits of DIS while mitigating the destabilizing effects of its interaction with capital ratios.

This study introduces a novel aspect by examining the mediating role of capital in the relationship between explicit DIS and the financial stability of Islamic and conventional banks.

This paper provides a comprehensive review of the influential and intellectual aspects of the literature on the Gulf Cooperation Council (GCC) region's banking activities.

This study undertakes a bibliometric meta-analysis review of the GCC region banking literature, covering 199 articles published between 2004 and 2022, extracted from the Web of Science (WoS) database, followed by a content analysis of highly cited papers.

This paper identifies the influential aspects of the GCC region banking literature in terms of journals, articles, authors, universities and countries. The paper also identifies and discusses five major research clusters: (1) bank efficiency; (2) corporate governance (CG) and disclosure; (3) performance and risk-taking; (4) systemic risk, bank stability and risk spillovers and (5) intellectual capital (IC). Finally, it identifies gaps in the literature and highlights some important research issues that provide directions for future research.

This paper is limited to the articles indexed in the WoS database and written in English. Though the WoS database encompasses a wide range of multidisciplinary journals, there is a chance that some relevant articles are not included in the WoS database or written in another language.

This study provides regulators, practitioners and academics with valuable insight and an in-depth understanding of the banking system of the GCC region.

To the best of the authors' knowledge, this is the first review paper on GCC region banking literature. This study provides regulators, practitioners and academics with valuable insight and an in-depth understanding of the banking system of the GCC region.

The present study assesses the commercial bank profit efficiency and its relationship to banking sector competition in a rapidly growing emerging economy, India from 2009 to 2019 using stochastic frontier analysis (SFA).

Lerner indices, conventional and efficiency-adjusted, quantify competition. Two SFA models are employed to calculate alternative profit efficiency (inefficiency) scores: the two-step time-decay approach proposed by Battese and Coelli (1992) and the recently developed single-step pairwise difference estimator (PDE) by Belotti and Ilardi (2018). In the first step of the BC92 framework, profit inefficiency is calculated, and in the second step, Tobit and Fractional Regression Model (FRM) are utilized to evaluate profit inefficiency correlates. PDE concurrently solves the frontier and inefficiency equations using the maximum likelihood process.

The results suggest that foreign banks are less profit efficient than domestic equivalents, supporting the “home-field advantage” hypothesis in India. Further, increasing competition drives bank managers to make riskier lending and investment choices, decreasing bank profit efficiency. However, this effect varies depending on bank ownership and size.

Literature on the competition bank efficiency link is conspicuously scant, with a focus on technical and cost efficiency. Less is known regarding the influence of competition on bank profit efficiency. The article is one of the first to examine commercial bank profit efficiency and its relationship to banking sector competition. Additionally, the study work represents one of the first applications of the FRM presented by Papke and Wooldridge (1996) and the PDE provided by Belotti and Ilardi (2018).

This paper examines the determinants of bank income smoothing using loan loss provisions in the United Kingdom or Great Britain from 1999 to 2017.

The study used ordinary least square (OLS) regression and applying the HAC robust standard error correction test.

The findings showed that UK banks use loan loss provision for income smoothing purposes. Income smoothing is greater in times of high economic policy uncertainty. The extent of bank income smoothing is reduced by foreign bank presence, UK GAAP adoption, IFRS9 adoption, and high levels of voice and accountability. Also, there is reduced income smoothing using loan loss provisions during a financial crisis and in periods of economic prosperity.

The implication is that economic conditions, institutional governance and accounting disclosure rules can influence the extent of bank income smoothing in the United Kingdom. The findings of the study contribute to several studies that explore the determinants of bank income smoothing.

No study has extensively examined the determinants of bank income smoothing in Great Britain or the United Kingdom. The present study fills this gap in the literature.