Whither competition in Malaysia’s banking industryex posta restructuring

Tinfah Chung and Mohamed Ariff ()

Journal of Economic Studies, 2018, vol. 45, issue 2, 263-282

Abstract: Purpose - The purpose of this paper is to report how banking competition has faredex posta major consolidation exercise completed during 2002-2004, which led to a complete restructuring of the sector in Malaysia. Nothing is known about the competitiveness of banking systemex posta major consolidation of banks in any country including Malaysia, a middle-income economy. Design/methodology/approach - The authors apply two models, the Panzar and Rosse (1997) and the Lerner index (1934). The two competitiveness measures are quite refined, well received by researchers, but has yet been applied to measure banking sector competitiveness of a middle-income country to characterize post-merger behavior using post-global-crisis data set. The data were complemented by documentary analysis, including brand documents, descriptions of internal processes and copies of employee magazine articles. Findings - The results indicate that, after 11 years of consolidation, the banking sector is not operating under perfect or monopolistic competition. Malaysia’s banking industry continues to benefit the charter holders at increasingly lower level because a cartel-like environment still provides trade-off of competition costs before 2002/2004 with the costs from a cartel-like industry structures now. There is only a weak evidence that, in recent years, the banking sector is moving toward more competition. Research limitations/implications - The chosen area of research is to test the response of the banking sectorex postconsolidation after a crisis. It enables researcher to compare results with those of other countries and may not be generalizable. Practical implications - The findings reported in this study using corroborating measures for the first time, appear to suggest increasing concentration from consolidation may lead to the undesirable cartel-like industry structure where the exercise of market power in the name of stability may not be welfare promoting. Originality/value - This paper fulfills an identified need to study how the banking sector has performedex postconsolidation after a crisis.

Keywords: Competition; Lerner index; Global financial crisis; Market structure; Malaysian banking consolidation; Panzar-Rosse model; D24; G21; L1 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:jes-01-2017-0009

DOI: 10.1108/JES-01-2017-0009

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