| Title : | The impact of market power and efficiency on performance of Nepalese commercial banks | | Material Type: | printed text | | Authors: | Pramesh Shrestha, Author | | Publication Date: | 2016 | | Pagination: | 101p. | | Size: | GRP/Thesis | | Accompanying material: | 6/B | | Languages : | English | | Descriptors: | Market power
| | Class number: | 338.820 | | Abstract: | The relationship between performance and market structure has generated two competing hypotheses namely, traditional structure conduct performance hypothesis (SCP) and the efficient structure hypothesis (EFS) (Ardianty and Viverita, 2011). The SCP hypothesis suggests that the level of concentration in a particular market will influence the degree of competition among firms in that market (Katib, 2004). Empirically, the SCP relationship is tested by examining the relationship between profitability and market concentration, with a positive relationship indicating non-competitive behavior in concentrated markets (Goldberg and Rai, 1996). High concentration is the useful signal of less competitive and hence inefficient market in which large firm charge higher loan rates, pay lower deposit rates, and lower collusion costs through their market power, thus generate more profits (Park and weber, 2006; Casu and Girardone, 2006; Demirguc-Kunt, et al., 2004; Katib, 2004).
The major purpose of this study is to identify the impact of market power and performance on efficiency of Nepalese commercial banks. The study has the following specific objectives is to analyze the structure and pattern of ROA, NIM, market share in terms of total deposits (MSDEP), market share in terms of total assets (MSASSET), leverage ratio, capital ratio, staff expenses to total assets (SETA) in Nepalese commercial banks.
This study is completely based on secondary data. This study has been based on pooled cross sectional data of 9 years from 2004/05 to 2012/13. Different sources have been used to collect data on variables of the interest. Annual reports of respective banks, supervision report published by Nepal Rastra Bank and banking statistics published by Nepal Rastra Bank are the major sources, which have been used to collect necessary data required to undertake the study. Data that has been not provided on above mentioned sources are collected by visiting respective banks’ corporate offices.
The market share and market concentration are positively related to bank profitability in terms of both return on assets and net interest margin. The result shows that there is a positive relationship between efficiency and bank profitability indicating that higher the efficiency, higher would be bank profitability. Capital ratio and staff expenses to total assets are positively correlated with return on assets. Leverage ratio was found to be negatively correlated with return on assets.
The beta coefficient for market share is positive and significant with return on assets. It indicates that increase in market share leads to increase in return on assets of Nepalese commercial banks. A negative impact of market concentration on firm profitability has been found in Nepalese commercial banks. Negative beta coefficients postulated higher the market concentration of the banks lower would be the profitability. Efficiency is significant in explaining the profitability of the banks. The beta coefficients are positive, which indicates that higher the efficiency higher would be the bank’s profitability.
The major conclusion of the study is that profitability of Nepalese commercial banks is not determined by concentration rather they generate their performances through efficient activities and their market share. Moreover, this study also concludes that modified efficient structure hypothesis is in charge in Nepalese commercial banking industry.
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The impact of market power and efficiency on performance of Nepalese commercial banks [printed text] / Pramesh Shrestha, Author . - 2016 . - 101p. ; GRP/Thesis + 6/B. Languages : English | Descriptors: | Market power
| | Class number: | 338.820 | | Abstract: | The relationship between performance and market structure has generated two competing hypotheses namely, traditional structure conduct performance hypothesis (SCP) and the efficient structure hypothesis (EFS) (Ardianty and Viverita, 2011). The SCP hypothesis suggests that the level of concentration in a particular market will influence the degree of competition among firms in that market (Katib, 2004). Empirically, the SCP relationship is tested by examining the relationship between profitability and market concentration, with a positive relationship indicating non-competitive behavior in concentrated markets (Goldberg and Rai, 1996). High concentration is the useful signal of less competitive and hence inefficient market in which large firm charge higher loan rates, pay lower deposit rates, and lower collusion costs through their market power, thus generate more profits (Park and weber, 2006; Casu and Girardone, 2006; Demirguc-Kunt, et al., 2004; Katib, 2004).
The major purpose of this study is to identify the impact of market power and performance on efficiency of Nepalese commercial banks. The study has the following specific objectives is to analyze the structure and pattern of ROA, NIM, market share in terms of total deposits (MSDEP), market share in terms of total assets (MSASSET), leverage ratio, capital ratio, staff expenses to total assets (SETA) in Nepalese commercial banks.
This study is completely based on secondary data. This study has been based on pooled cross sectional data of 9 years from 2004/05 to 2012/13. Different sources have been used to collect data on variables of the interest. Annual reports of respective banks, supervision report published by Nepal Rastra Bank and banking statistics published by Nepal Rastra Bank are the major sources, which have been used to collect necessary data required to undertake the study. Data that has been not provided on above mentioned sources are collected by visiting respective banks’ corporate offices.
The market share and market concentration are positively related to bank profitability in terms of both return on assets and net interest margin. The result shows that there is a positive relationship between efficiency and bank profitability indicating that higher the efficiency, higher would be bank profitability. Capital ratio and staff expenses to total assets are positively correlated with return on assets. Leverage ratio was found to be negatively correlated with return on assets.
The beta coefficient for market share is positive and significant with return on assets. It indicates that increase in market share leads to increase in return on assets of Nepalese commercial banks. A negative impact of market concentration on firm profitability has been found in Nepalese commercial banks. Negative beta coefficients postulated higher the market concentration of the banks lower would be the profitability. Efficiency is significant in explaining the profitability of the banks. The beta coefficients are positive, which indicates that higher the efficiency higher would be the bank’s profitability.
The major conclusion of the study is that profitability of Nepalese commercial banks is not determined by concentration rather they generate their performances through efficient activities and their market share. Moreover, this study also concludes that modified efficient structure hypothesis is in charge in Nepalese commercial banking industry.
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