Bank Reforms and Competition: New Global Evidence

Abstract

This study investigates the relationships between bank reforms and competition and sets up a large-scale sample covering 15 290 individual commercial banks from 90 countries. The empirical results of the full sample indicate that bank reforms, except for interest rate controls, increase competition significantly. To examine whether country heterogeneities influence the effects from bank reforms, we further divide countries into six groups: Advanced, Asia, Latin America, Middle East and North Africa (MENA), Sub-Saharan Africa (SSA), and Transition countries. Our results show that: (i) interest rate controls play an important role for Advanced countries; (ii) privatization is substantial for Transition countries, Asia, Latin America, and MENA; (iii) credit control is suitable for Asia; and (iv) removing entry barriers improves bank competition in MENA and SSA. Empirical results thus offer evidence that country characteristics do matter on the reform-competition nexus. Moreover, we also reveal that bank competition is enhanced through bank reforms, as well as financial and economic development variables. Hence, the government or authorities should take these influential factors into consideration when formulating relevant policies. These findings also provide important implications.

Non‐interest Income, Profit, and Risk Efficiencies: Evidence from Commercial Banks in China

“…The regulatory authorities should further promote financial reforms aiming to increase competition and improve operational efficiency (Lee and Hsieh, 2014). First, the People's Bank of China should cancel the ceiling of the deposit interest rate gradually, especially after the establishment of the deposit insurance system.…”

Exploring the nexus between financial sector reforms and the emergence of digital banking culture – Evidences from a developing country

“…Consistent with the interest in reform programs, a great deal of banking, financial and economic research started exploring the relationships or links between reform programs and bank competitiveness, efficiency and economic growth (Sehrawat and Giri, 2015;Mwenda and Mutoti, 2011), income inequality (Christopoulos and McAdam, 2017), bank competition (Lee and Hsieh, 2014), output growth (Levine, 2005), employment growth (Boustanifar, 2014), profit and cost productivity of the banking sector (di Patti and Hardy, 2005) and so forth. In some cases, these reforms became necessary due to the destabilization effects of global financial crises in regional markets such as ASEAN (Gimet and Lagoarde-Segot, 2011) and African countries (Senbet, 2009).…”