Empirical evidence on bank market power, business models, stability and performance in the emerging economies

Oktofa Yudha Sudrajad () and Georges Hübner
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Oktofa Yudha Sudrajad: HEC Liège, ULiège

Eurasian Business Review, 2019, vol. 9, issue 2, No 6, 213-245

Abstract: Abstract This paper studies the nexus between market power and business models in the banking industry. Business models are represented by non-interest income and non-deposit short-term funding share. We also examine the impact of bank business models on banking stability and performance. Using a sample comprising six ASEAN country banking sectors from 2002 to 2015, we find that banks with a strong capital base but lower net interest margin perform better in translating their market power into generating non-traditional income as alternative sources of revenues. Our findings also show that the implementation of the Basel 2 Accord encourages banks to create non-interest income from trading and derivatives activities as well as from other non-interest income. We also document that banks with higher market power tend to increase non-deposit short-term funding in their financing mix. In the evaluation of banking stability, our results suggest that banks with greater non-traditional income are associated with less overall banking risk. Moreover, non-traditional incomes also contribute to better bank performance.

Keywords: Bank business models; Lerner index; Market power; Bank stability (search for similar items in EconPapers)
JEL-codes: G21 G24 G33 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s40821-018-0112-1

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