Foreign bank entry and bank competition: Cross-country heterogeneity

Yin, Haiyan

doi:10.1016/j.gfj.2020.100558

Cited by 15 publications

(14 citation statements)

References 41 publications

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“…Similar observations were reported by Li [40]. Furthermore, Yin [43] reports that developing countries impose more restrictions on bank activities than developed nations. e author also cites that the weaker supervisory mechanism in developing nations is one of the key factors behind the more number of restrictions on bank activities.…”

Section: Relevant Literature Reviewsupporting

confidence: 83%

Examining the Development of Banking Sector Regulations and Supervision Practices across BRICS and G7 Countries

et al. 2021

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The study examines the development in the banking regulatory practices across BRICS nations over the period 2000–2019. The convergence and sustainability of the regulatory framework in BRICS nations to G7 norms have also been assessed. The analysis is based on five key regulatory measures, which include activity restrictions, entry requirements for a new bank, foreign bank entry restrictions, capital stringency, and deposit insurer powers. The study constructs the regulatory indexes based on the central bank responses to the Bank Regulation and Supervision Survey (BRSS) conducted by the World Bank. To estimate the indexes, the study follows Barth, Caprio, and Levine guidelines. The result reveals that the regulators of BRICS countries impose higher restrictions on bank activities than in the G7 nations. Furthermore, the United Kingdom and Brazilian bank regulators are more liberal and imposed fewer restrictions on insurance activity only. In addition, getting a bank license is tough in both regions. Regulators allow only fit and proper applicants into the banking domain. Furthermore, the authors find that the requirements for capital are becoming more restricted in BRICS nations between 2003 and 2019 to align with Basel capital accords, relative to G7 nations. The study documents a convergence in the banking licensing requirements, and limitations on foreign bank entry and official supervisory powers in the BRICS countries with the G7 nations. The study suggests that the regulators must offer freedom to banks’ activities with increasing supervision, and it boosts the competition in the banking sector and enhances customer welfare. Furthermore, the policymakers need to redesign the deposit insurance mechanism and equip deposit insurers with more powers to enhance the safety of depositors’ interests and minimize the moral hazards in the banking sector in both regions.

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Section: Relevant Literature Reviewsupporting

confidence: 83%

Examining the Development of Banking Sector Regulations and Supervision Practices across BRICS and G7 Countries

et al. 2021

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“…The other reason for low competition and oligopoly structure in the Iranian banking system can be the nonexistence of foreign banks in the Iranian Islamic banking system. Some studies indicated that foreign bank entry could improve the competition in the market (Claessens and Laeven, 2004; Yin, 2021). The cartel-like structure of the Iranian Islamic banking system can also be due to the lack of transparency (ERDOĞAN et al , 2020) claim that the Iranian Islamic banking system lack transparency that can make it difficult to monitor and supervise the operation of the system.…”

Section: Resultsmentioning

confidence: 99%

Empirical evaluation of structure-conduct-performance paradigm as applied to the Iranian Islamic banking system

Asl

Rashidi

Ghorbani

2021

IMEFM

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Purpose This paper aims to investigate the impact of market structure and market share on the performance of the Islamic banks operating in the Iranian banking system based on the structure-conduct-performance (SCP) paradigm. Design/methodology/approach The Iranian Islamic banking system’s market structure is evaluated by using the econometrics method to test the validity of the traditional SCP paradigm. For this purpose, the authors estimate a simple regression model that is consisted of several independent variables, such as the market share, bank size, real gross domestic product, liquidity and Herfindahl-Hirschman index as a proxy variable for concentration and one dependent variable, namely, the profit as a proxy for performance. The panel data includes a data sample of 22 Islamic banks operating from 2006 to 2019. Data are extracted from the balance sheet of Islamic banks and the time-series database of the Central Bank of Iran and World Bank. Findings The study’s findings indicate that both concentration and market share have a positive impact on the performance of banks in the Iranian Islamic banking system. This result is contradicted with both traditional SCP and efficient structure hypotheses; however, it confirms the existence of oligopoly or cartel in the Iranian Islamic banking system that few banks try to gain the highest share of profit and maintain their market share by colluding with each other. This result is in contradiction with other research studies about the market structure in the Iranian banking system that claimed that banks in Iran operate under monopolistic competition. In addition, it shows that the privatization of some banks in Iran does not improve and help competition in the Iranian banking system. Originality/value This paper is a pioneer empirical study analyzing the market structure, concentration and collusion based on the SCP paradigm in Iranian Islamic banking. The results of the study support the existence of collusive behavior among the Islamic bank in Iran that is not aligned with Sharia. This study clearly shows the difference between ideal Islamic banking and Islamic banking in practice in Islamic countries. This clearly indicates that only prohibiting some operations like receiving interest, gambling and bearing excessive risk is not enough. In fact, the Islamic banking system should be based on the Sharia rule in all aspects and much more modification and study have to be done to achieve an appropriate Islamic banking system. These possible modifications to overcome the issues of cartel-like market structure and collusive behavior in the Iranian Islamic banking system include making the Iranian banking system more transparent, letting foreign banks enter the Iranian banking system and minimizing the government intervention in the Iranian banking system.

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“…The authors also showed that institutional quality and other factors of host the country reduce the inefficiency of foreign banks. This finding is further explained by Yin (2021) who showed that stringent capital requirements, higher market entry barriers, and effective credit information sharing can impede the impact of foreign banks. Kebede et al (2021) also shared similar views where they found that in the presence of strong institutions, foreign bank presence influences the access to financial services positively.…”

Section: Reviewed Literaturementioning

confidence: 92%

“…Among such debates in the literature related to the contribution of foreign bank presence to the overall development of the financial system. For instance, on the one hand, Boamah et al (2022), Yin (2021), Azmeh (2018), Bonin and Louie (2017), and Wu et al (2010), argue that foreign banks can promote financial development. They suggest that the presence of foreign banks enhances competition, improves the use of more current banking procedures and techniques, and facilitates financial intermediation in the financial market.…”

Section: Introductionmentioning

confidence: 99%

The effects of foreign bank presence on financial development in Africa: The role of institutional quality

Iddrisu¹,

Abor

Banyen³

2023

Rev Financ Econ

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Despite the momentous rise in concentration and market share of foreign banks in overall bank assets in Africa, rigorous empirical work(s) examining their effect on financial sector development in Africa is hard to find. In view of this, the study seeks to investigate the moderating role of institutions/governance on the foreign bank presence‐financial development nexus. Employing the two‐step system generalized method of moment for a panel dataset of 28 economies in Africa over the period, 2000–2018, the results show that foreign bank presence has a positive effect on financial development. Also, the study finds evidence that foreign banks in host countries increase financial development in the presence of quality institutions. The study recommends improvement in institutional quality, which will help foreign banks to promote financial development.

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Foreign bank entry and bank competition: Cross-country heterogeneity

Cited by 15 publications

References 41 publications

Examining the Development of Banking Sector Regulations and Supervision Practices across BRICS and G7 Countries

Examining the Development of Banking Sector Regulations and Supervision Practices across BRICS and G7 Countries

Empirical evaluation of structure-conduct-performance paradigm as applied to the Iranian Islamic banking system

The effects of foreign bank presence on financial development in Africa: The role of institutional quality

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