Measuring Bank Competition in China: A Comparison of New Versus Conventional Approaches Applied to Loan Markets

Abstract

BIS Working Papers are written by members of the Monetary and Economic Department of the Bank for International Settlements, and from time to time by other economists, and are published by the Bank. The papers are on subjects of topical interest and are technical in character. The views expressed in them are those of their authors and not necessarily the views of the BIS. This publication is available on the BIS website (www.bis.org).

Competition Analysis of Banking Industry in Indonesia: Bank Size, Bank Type, and Efficiency Transfers

“…This means that there is a negative relationship between efficiency and profit rate (Liu et al, 2013). Although theoretically RPD is capable to measure the level of competition, it requires very intensive calculations and because it requires a relative efficiency rating of all banks in the industry each year (Xu et al, 2013;Leon, 2014) The use of PE undergoes several changes made by researchers in the use of proxy performance and efficiency level. At the efficiency level, researchers use average cost which is a less suitable proxy to measure efficiency level for example in Schaeck & Cihak (2010).…”

“…PE Model in banking industry was first performed by Leuvensteijn et al, (2007) using the data of European Union countries and popularized it as Boone Indicator. Afterwards, severel studies followed by using the data from other countries, for example: USA and EU Countries (Leuvensteijn et al, 2008;Cihak, 2008 and2010), Latin America (Tabak et al, 2012), China (Xu, 2013), and Mexico (Garza-Garcia & Castelanos, 2013). The Boone Indicator is superior with a strong theoretical proof compared to using the Lerner Index, albeit with almost identical variables and data requirements.…”

“…Boone Indicator can measure the competition without many assumptions such as whether in the long run the industry can achieve the equilibrium (i.e. PR Model) or whether the competition model follows the Cournot or Bertrand competition model (Xu et al, 2013). The empirical model can be estimated with a simple linear equation model requiring fewer observations and capable of measuring the level of competition on an ongoing basis.…”

“…The information on marginal costs is not available directly from the bank financial statements as using variable cost ratios. Overcoming these obstacles, this research used the translog cost function model to estimate the marginal cost, among others, in Leuvensteijn et al (2007Leuvensteijn et al ( & 2008, Schaeck & Cihak (2008), & Tabak et al (2012) and Xu et al (2013). The translog cost function follows an intermediate approach in modeling the bank's business (Klein, 1971in Leon, 2014.…”

Third-Party Payments Impact on Commercial Banks’ Non-Interest Income: Evidence from China

“…As the transformation of China"s economy and society has profoundly promoted the evolution of the banking system towards to marketization since 1979, the banking layout in China has undergone cracking changes. In essence, it has shifted from a planned dominant economy structure to a pluralistic system containing diverse of market-oriented banks (Xu, Rixtel, & Leuvensteijn, 2013). The research from Elliott and Yan (2013) summarize that the banking industry in China is highly centralized, top five largest state-owned commercial banks control about half of the entire banking assets.…”