Competiton and bank stability in Asean countries: an empirical analysis

Abstract

Investigating the relationship between competition and bank stability has been at center of academic and policy issues, intensifying after occurrence of system banking crises over the last three decades. The global trend towards consolidation in the financial industry, the banking sector in the ASEAN region experienced a dramatic shift from deregulation to regulation based on the experience of 1997 Asian Financial crisis. Hence, this study examines the impact on bank stability of competition in ASEAN market by taking into account crisis periods. Using unbalanced dataset from more 200 commercial banks across 7 ASEAN countries over the period from 1995 to 2015, this study provides empirical evidence supporting the competition point of view that a non-linear or Ushaped nexus between competition and bank stability. Banks were found to be highly volatile and lost capitalization during the 1997 Asian crisis, whereas the 2007-2008 global financial crisis stage did not directly affect Asian banks. Besides, smaller banks in this region were more competitive than large banks over same period and they may contribute to improve financial soundness. On the other hands, the findings also provide some recommendations for policymakers in ASEAN economics. Screen reader support enabled.