Purpose – The purpose of this paper is to investigate whether any deviations in South Asian banks' interest margins can be attributed to market concentration (MC) after controlling for other bankspecific factors and exogenous environmental influences. Design/methodology/approach – The paper employs an improved structural priceconcentration model with multiple definitions of market share (MS) covering loan and deposit markets. This model is estimated using generalized least squares method and random effect estimates are reported. The sample consists of 120 South Asian banks with a total of 1,226 bankyear observations over 19922005. Findings – The findings suggest that no significant deviations in bank interest margins can be attributed to MC. Instead, only dominant South Asian banks with larger MSs are found to extract higher interest margins. Research limitations/implications – This paper suffers from three main limitations: first, due to data limitations the sample only consists of South Asian domestic commercial banks. Second, due to the lack of productspecific interest rates the authors have to contend with approximated bankspecific interest margins. Third, throughout the study, annual bankspecific data are used due to lack of highfrequency data. Practical implications – The regulators should closely monitor dominant banks with larger loan and deposit shares because these institutions operate with higher interest margins. Similarly, stateowned banks (with relatively inefficient cost structures) should also draw regulatory attention for they extract higher interest margins, possibly, for survival. Originality/value – The existing literature is extended by utilizing a pooled crosssection and time series data model which controls for sample heterogeneity using proxies for cost structures, risk profiles and regulatory restrictions.
|Number of pages||15|
|Journal||International Journal of Emerging Markets|
|Publication status||Published - 26 Jan 2010|
- Market share
- South Asia