Do Regional Banks Compete or Collude? A Market Structure Analysis Under Indonesia’s Capital Regulation Threshold

Lukmanul Hakim Aziz (), Noer Azam Achsani (), Tifani Husna Siregar () and Hermanto Siregar ()
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Lukmanul Hakim Aziz: Sultan Ageng Tirtayasa University, Faculty of Economics and Business
Noer Azam Achsani: Institut Pertanian Bogor University, School of Business
Tifani Husna Siregar: Interdisciplinary Research Center for Finance and Digital Economy, King Fahd University of Petroleum and Minerals
Hermanto Siregar: Institut Pertanian Bogor University, Faculty of Economics and Management

A chapter in Business and Sustainable Development in a Globalized and Digitalized Era, 2026, pp 426-447 from Springer

Abstract: Abstract This study examines whether Indonesia’s twenty-four regional development banks behave competitively or collusively following the Financial Services Authority’s decision to raise the core capital threshold to IDR 3 trillion in 2020. We categorise the banks into two groups: those below the new threshold and those at or above it. Utilising a panel Vector Error Correction Model, we analyse the relationship among profitability, market power, efficiency and market share from 2012 to 2022. Employing the sign-based classification method developed by Ye et al. (2012), we assess five competing theories of bank performance: the Structure–Conduct–Performance paradigm, Relative Market Power, Relative Efficiency Structure, Scale Efficiency Structure, and the Quiet Life Hypothesis. Our findings indicate that efficiency is a key driver of profits in lower-capital banks, whereas well-capitalised banks leverage their deposit market power; however, evidence of collusive pricing is not supported in either group.

Keywords: regional development banks; Indonesian capital regulation; market structure; bank competition; bank collusion; market power; technical efficiency; scale efficiency; panel Vector Error Correction Model; Structure–Conduct–Performance theory; Relative Market Power theory; Relative Efficiency Structure theory; Quiet Life Hypothesis (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-032-29346-6_21

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DOI: 10.1007/978-3-032-29346-6_21

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