COMPETITIVE CONDITIONS IN BANKING INDUSTRY: AN EMPIRICAL ANALYSIS OF THE CONSOLIDATION, COMPETITION AND CONCENTRATION IN THE INDONESIA BANKING INDUSTRY BETWEEN 2001 AND 2009
Abstract
Few large banks dominate the Indonesia banking industri. Furthermore, in the past ten years, there were a series of mergers and acquisitions in the banking market. The facts cause implications on competition. In this paper, we examine these issues exploiting an unconsolidated annual financial report of all commercial banks between 2001 and 2009. The Panzar-Rose method is employed to examine the banks behavior in competition. Estimates indicate that banks in all three subsamples, large; medium-sized and small are working in a monopolistically competitive market. The analysis of market concentration supports the conventional view that concentration impairs competition. The study shows that the most competitive market was the medium-sized banks because it was least concentrated. In contrast, the large market was more concentrated thus it was less competitive. The consolidation policies driven by the Central Bank reduced market concentration because mergers and acquisitions were mostly conducted by the mediumsized and small banks. Further the improvement of market share distribution and the increasing capacity of the merging banks enhanced competition in the Indonesia banking industry.
Keywords: Banking, market competition, market structure
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References
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Bain, Joe E. (1956). Barriers to New Competition. Cambridge. Mass: Harvard University Press.
Berger, Allen N., and Timothy H. Hannan. (1989). The Price-Concentration Relationship in Banking. Review of Economics and Statistics 71.Hal.291-99.
Bikker, Jacob A., and Katharina Haaf. (2002). Competition, concentration, and their relationship:An empirical analysis of the banking industri. Journal of Banking and Finance 26.hal. 2191-2214.
Boumol, William, John C. Panzar, and Robert D. Willig.(1982). Contestable Markets and the Theory of Industri Structure. San Diego: Harcourt Brace Jovanovich.
Buletin Bisnis. (2007). Daftar Akuisis dan Merger Bank di Indonesia. Retrieved from website: http://buletinbisnis.wordpress.com/2007/12/11/daftar-akuisisi-dan-merger-bank-diindonesia/.
Calem, Paul, and Gerald Carlino. (1991). The Concentration/ Conduct Relationship in Bank Deposit Market. Review of Economics and Statistics 73.hal. 268-76.
Canoy, Marcel, Machiel van Dijk, and Jan Lemmen. (2001).Competition and Stability in Banking.CPB Netherland Bureau for Economic Analysis.Netherland.
Bank Sentral Indonesia.(2010). Arsitektur Perbankan Indonesia.dikutip dari website:www.bi.go.id.
Aturan Bank Sentral IndonesiaRepublik IndonesiaNomor 10/15/PBI/2008 TentangKebutuhanModal Minimum
Aturan Bank Sentral Indonesia Republik Indonesia Nomor 8/16/PBI/2006 TentangKebijakanSingle Presence.
Central Bank of Indonesia.(2009). Indonesia Banking Statistics 2009.
Chan, Donald, Christopher Schumacher, and David Tripe.(2007). Bank Competition in New Zealand and Australia.Finsia_MCFS.The Melbourne Center for Financial Studies. Retrieved from website: http://www.melbournecentre.com.au/
Chua, H.B. (2003). FDI in financial sector: the experience of ASEAN countries over the last decade, in CGFS (2004), the Central Bank paper submitted by Working Group members. Retrieved from website: www.bis.org/publ/cgfs22mas.pdf
Claessens, Stijn, Asli Demirhuc-Kunt, and Harry Huizinga.(1998). How Does Foreign Entry Affect the Domestic Banking Market.Policy Research Working Paper.The World Bank.
Claessens, Stijn, and Luc, Laeven. (2004). What Drives Bank Competition? Some International Evidence.World Bank Policy Research Paper.No.3113, August.
De Bandt, O., and Davis, E.P., (2000). Competition, contestability and market structure in European banking sectors on the eve of EMU. Journal of Banking and Finance 24, 1045-1066.
Demsetz, Harold. 1973. Industry Structure, Market Rivalry, and Public Policy. Journal of Law and Economics 16 (April).hal. 1-10.
Gelos, Gaston., R and Jorge Roldos. (2002). Consolidation and Market Structure in Emerging Market Banking Systems.IMF Working Paper WP/02/186.
Legislation number 5/ 1999 Regarding the Indonesian Competition Regulation
Legislation of Republic of Indonesia Number 7/1998 Regarding Banking Sector.
McLeod, Ross. (1999). Control and competition: Banking deregulation and re-regulation in Indonesia. Journal of the Asia Pacific Economy, No 4(2), p. 258-297.
Molyneux, Phillip, John Thornton, and D. Michael Llyod-Williams.(1991). Competition and Market Contestability in Japanese Commercial Banking.Mimeo. Washington, D,C. International Monetary Fund.
Molyneux, Phillip, John Thornton, and D. Michael Llyod-Williams.(1994). Competition condition in European Banking.Journal of Banking and Finance 18.hal.445-459.
Nathan, Ali, and Edwin H. Neave. (1989). Competition and Contestability in Canada»s Financial System: Empirical Results. Canadian Journal of Economics 22 (June).Hal.576-94.
Nueberger, Doris. (1997). Structure, Conduct and Performance in Banking Markets.University Rostock, Working Paper No. 12.
Panzer, John C., and James N. Ross. (1987). Testing for ≈Monopoly Equilibrium∆. The Journal of Industrial Economics.hal.443-456.
Pelzman, Samuel. (1977). The Gains and Losses from Industrial Concentration. Journal of Law and Economics 20.hal. 229-63.
Shaffer, Sherrill. (1982). A Nonstructural Test for Competition in Financial Markets. Proceedings of a Conference on Bank Structure and Competition (Federal Reserve Banks of Chicago) on May. hal.225-43.
Shaffer, Sherrill. (1994a). Bank Competition in Concentrated Market.Business Review.March/April.
Shaffer, Sherrill. (1994b). Structure, Conduct, Performance, and Welfare.Review of Industrial Organization 9.hal. 435-450.
Tirole, J. (1987). The Theory of Industrial Organization.MIT Press, Cambridge, MA.
Vesala. (1995). Testing Competition in Banking: Behavioral Evidence from Finland. Bank of Finland Studies Working Paper No. E1.
Yeyati, Eduardo, Levy and Micco, Alejandro. (2003a). Concentration and Foreign Penetration in Latin American Banking Sectors: Impact on Competition and Risk. Inter-American Development Bank.Retrieved from website: http://www.oecd.org/dataoecd.
Yeyati, Eduardo Levy and Micco Alejandro.(2003b). Banking Competition in Latin America. Latin-American Competition Forum. Retrived from website: http://www.oecd.org/dataoecd.
Yeyati, Eduardo, Levy and Micco, Alejandro. (2007). Concentration and Foreign Penetration in Latin American Banking Sectors: Impact on Competition and Risk. Journal of Banking and Finance 31.hal. 1633-1647
Published
2012-01-30
How to Cite
Mulyaningsih, T., & Daly, A. (2012). COMPETITIVE CONDITIONS IN BANKING INDUSTRY: AN EMPIRICAL ANALYSIS OF THE CONSOLIDATION, COMPETITION AND CONCENTRATION IN THE INDONESIA BANKING INDUSTRY BETWEEN 2001 AND 2009. Buletin Ekonomi Moneter Dan Perbankan, 14(2), 151-186. https://doi.org/10.21098/bemp.v14i2.461
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Buletin Ekonomi Moneter dan Perbankan / Bulletin of Monetary Economics and Banking is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
