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In 2013-2014, Bank Muscat and National Bank of Oman requested a merger and Bank Sohar and Bank Dhofar lodged a similar request. This paper aims to investigate the shape of the market structure, and it tries to answer whether approving such requests is good for the industry, economy and society.

The study examines the market structure of Oman Banking Industry, and it also presents the shape of the market structure if there had been an approval for these mergers’ requests. The Herfindahl–Hirschman Index (HHI) and the biggest k-banks Concentration Ratio (CRk), which measure concentration changes over 17 years during the period 1998-2014, are used in this study.

The study finds that Oman’s Banking Industry is highly concentrated, which should cause concerns over these two requests of mergers or similar requests in the future. In general, the concentration ratio shows decreasing trend. The concentration ratio in the deposit market implies a concentrated market with CR2 and CR3 recording 67 and 85%, respectively, while HHI reached 2,864 points in the 1998. However, in 2014, the concentration ratio had decreased, to CR2 and CR3 recording 52 and 65% respectively, and HHI standing at 2,112 points.

The researcher suggests future investigation and further research in setting a benchmark index as a guideline for mergers’ requests.

Exercising monopoly power, by fewer banks, is very harmful to the economy. Charging higher interest rates on business loans escalates the cost of production of products and services which will cause inflation; therefore, monopoly power will lead to slow growth of the economy.

Regulators in Central Bank of Oman (CBO) or in any central bank should be very careful in granting mergers, especially among big banks, because it enables newly bigger banks to exercise monopoly power, thereby harming depositors who will be getting low deposit interest rates and harming borrowers by charging them high loan interest rate.

Even though, this study discussed two requests of mergers between banks in Oman; however, it has presented formal approaches to the measurement of market structure in any country. Overall, it provides the policymakers in making the final decisions on mergers between banks in the future which are not limited to these banks or to Oman’s Banking Industry.

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.