MARKET CONCENTRATION IN SOUTH ASIAN BANKING

摘要

This paper examines the market structure of the South Asian banking sector to evaluate the banking system's proneness to instability and crisis. Generally, greater concentration in the banking industry which reducing competition and increasing cost, leads to lower efficiency and thus higher obstacles to receiving bank financing. Yet a highly competitive banking sector might be more prone to crisis too-because of increased fragility resulting from intense competition-than a more concentrated one. Thus, striking the right balance matters for the optimal functioning and stability of the financial sector is important. Initial findings support the proposition that "greater concentration in the banking industry, by reducing competition and increasing cost, leads to lower efficiency and thus higher obstacles to receiving bank financing. In this paper we examine if South Asia has a higher market concentration in the banking sector and if it will lower the competition and if it has a negative impact on bank stability and soundness in that regions market. This study scrutinizes the quantifiable variable "market concentration of commercial banks" as a proxy for commercial banking stability and soundness in South Asian markets of Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka, and for the period 2001-2009. This is part of a larger study on banking soundness.