Banking Market Concentration and Bank Efficiency. Evidence from Southern, Eastern and Central Europe

Kozak, Sylwester; Wierzbowska, Agata

doi:10.2478/jeb-2021-0004

Cited by 15 publications

(35 citation statements)

References 71 publications

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“…The results are also in line with the results of Dadoukis et al, who indicates that larger banks and those who were better IT equipped in the pre-pandemic period during the first quarters of the pandemic, better maintained their market position, profitability, and financial stability [53]. Additionally, larger banks have more capacity to introduce non-interest services for diversification of income and improvement of profitability [54][55][56][57].…”

Section: Results Of Modelling and Discussionsupporting

confidence: 89%

The Impact of COVID-19 on Bank Equity and Performance: The Case of Central Eastern South European Countries

Kozak

2021

Sustainability

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The purpose of this article is to examine the impact of the shock increase, in the value of nonperforming loans, on the equity level and profitability of 141 banks in 18 countries of Central Eastern South Europe (CESE). This study is important for assessing the financial stability of banks in this region in the face of the continuing negative effects of the COVID-19 pandemic. Based on the annual data, as of the end of 2020, from the S&P Global database, stress tests were carried out to check what value of NPL growth, over the next year, will lead to breach the regulatory capital requirements in domestic sectors and in individual groups of banks. The results indicate that the banks in CESE were well capitalized and had the ability to maintain capital requirements with a 12% increase in nonperforming loans. The resilience of domestic banking sectors varies, and it is higher in non-EU countries. Smaller and non-public banks show a greater ability to preserve the appropriate level of equity, although there is a risk that they may postpone the time of provisioning credit risk and additionally increase lending to lower the NPL ratio. Larger banks are more profitable in times of crisis. The results of the research are important for assessing the stability of the banking sector in CESE during the crisis and can be used by financial supervision of the region’s countries and banking market analysts.

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Section: Results Of Modelling and Discussionsupporting

confidence: 89%

The Impact of COVID-19 on Bank Equity and Performance: The Case of Central Eastern South European Countries

Kozak

2021

Sustainability

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“…Increased competition can lead to high risk-taking due to reduced market power and the value of bank franchises” (p. 842). Moreover, the rise in the banking market concentration will most likely affect the efficiency of banks’ operations and their ability to finance the economy (Kozak and Wierzbowska 2021 ). This finding is expected to have strong implications for the regulatory authority and decision-makers in the MENA region to set up policies that promote bank efficiency in addition to establishing several regulations related to capital and bank supervision.…”

Section: Empirical Results and Discussionmentioning

confidence: 99%

“… 3 In a recent study of 150 banks operating in the SECE region, Kozak and Wierzbowska ( 2021 ) report that under the pressure of market competition, “more effective entities take over less effective competitors and then, thanks to the use of economies of scale and scope, reduce operating costs, diversify the product offer and increase profits” (p. 40). …”

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confidence: 99%

Bank performance before and during the COVID-19 crisis: Does efficiency play a role?

2022

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This study aims to evaluate the effect of efficiency and banking market structure on bank performance in the Middle East and North Africa (MENA) region. The relationship between efficiency and bank performance in the countries in the MENA region during the COVID-19 outbreak has not been examined. We use data for 225 banks in 18 MENA countries and find that bank performance strongly depends on the efficiency level and market power of banks. Furthermore, we investigate whether efficiency and market competition effects are significantly different between the two banking systems (Islamic and conventional). Our results indicate that efficiency and competition have a greater influence on the profitability level of conventional than Islamic banks. However, the efficiency impact is only marginally significant during the COVID-19 outbreak. Overall, our results suggest that managing a higher efficiency level leads to improved financial stability but, at the same time, increases the bank's appetite for taking higher risks. These findings deepen the existing notion that efficient banks are more resilient during global financial crises and emphasize the importance of bank regulatory reforms that boost efficiency in standing against the negative consequences of the recent (COVID-19) crisis.

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“…There is no doubt that the COVID-19 pandemic and the subsequent economic crisis have changed banks’ profits and risk sources, forcing them to change their business model [ 28 ]. According to Kozak and Wierzbowska [ 1 ], the expected increase in banking market consolidation due to the recent global crisis (COVID-19 pandemic) will most likely affect banks’ efficiency and ability to finance economic development. Moreover, Hamadi and Awdeh [ 29 ] concluded that “per se is not harmful to financial development.…”

Section: Theoretical Background and Hypothesesmentioning

confidence: 99%

“…In this paper, we investigate the effect of market concentration on bank efficiency using a sample of 225 banks in the countries in the Middle East and North Africa (MENA) region. According to Kozak and Wierzbowska [ 1 ], the importance of the relationship between banking market concentration and bank efficiency lies in the fact that “bank efficiency affects the ability to extend loans and ensure the financial stability of the entire banking sector” (p. 1). This issue is significant for emerging economies, including those in the MENA region, where financial markets are still underdeveloped, and bank credit is the primary source of financing economic growth.…”

Section: Introductionmentioning

confidence: 99%

Efficiency, market concentration and bank performance during the COVID-19 outbreak: Evidence from the MENA region

2023

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This study aims to contribute to the existing literature that explores the impact of market concentration on bank efficiency in emerging economies. Using a sample of 225 banks in 18 countries in the Middle East and North Africa (MENA) region over the period 2006–2020, we empirically investigate the significance of this relationship. Since the evidence of concentration effect on efficiency during the COVID-19 outbreak is ambiguous, we test the hypothesis that the efficiency is positively affected by the level of banking market concentration in the MENA region. We adopt fixed effect model specifications and test the robustness of our results with the two-step Generalized Method of Moments (GMM) estimation technique. Our analysis finds a strong positive association between market concentration and bank efficiency. The analysis of different types of banking systems that co-existing in the MENA region (Islamic and conventional) indicates the market concentration effect is more pronounced when the banking institution is Islamic and during the COVID-19 outbreak. Moreover, the better economic performance of Islamic banks during the initial stage of pandemic further increases their efficiency. Our analysis indicated that the impact of market competitive conditions on bank efficiency varies significantly across banks with different ownership structures and is more pronounced for government-owned banks. The results are robust using different model specifications and alternative estimation techniques.

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Banking Market Concentration and Bank Efficiency. Evidence from Southern, Eastern and Central Europe

Cited by 15 publications

References 71 publications

The Impact of COVID-19 on Bank Equity and Performance: The Case of Central Eastern South European Countries

The Impact of COVID-19 on Bank Equity and Performance: The Case of Central Eastern South European Countries

Bank performance before and during the COVID-19 crisis: Does efficiency play a role?

Efficiency, market concentration and bank performance during the COVID-19 outbreak: Evidence from the MENA region

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