Competition in Hong Kong's Banking Sector: A Panzar-Rosse Assessment

22 Pages Posted: 23 Nov 2007

See all articles by Jim Wong

Jim Wong

Hong Kong Monetary Authority

T. C. Wong

Hong Kong Monetary Authority - Research Department

Tom Fong

Hong Kong Monetary Authority

Ka-fai Choi

Hong Kong Monetary Authority

Date Written: December 1, 2006

Abstract

This paper analyzes the evolution of competitive conditions of Hong Kong's banking industry based the Panzar-Rosse approach and a panel dataset of retail banks in Hong Kong for the period 1991-2005. Relaxation of bank regulations and bank consolidations have changed substantially the banking environment, particularly after 2001, with offsetting effects on the overall competitive condition. While the banking sector in Hong Kong is found to be highly competitive during the period 1992-2002, the empirical results also suggest that competitive condition have been maintained in subsequent years, despite significant changes in the operating environment. Empirical results also show that competitive pressure was higher among larger banks and lower among smaller banks. This suggests that while the two groups compete keenly in local retail markets, larger banks may be subjected to even stronger pressure from other competitors at regional or international levels in the corporate banking market, wealth management and other off-balance sheet activities, where they are more heavily involved than smaller banks.

Keywords: Hong Kong, Market structure, Bank competition, Panzar-Rosse model

JEL Classification: G21, L1, D40

Suggested Citation

Wong, Jim and Wong, Tak-Chuen and Fong, Tom and Choi, Ka-fai, Competition in Hong Kong's Banking Sector: A Panzar-Rosse Assessment (December 1, 2006). Available at SSRN: https://ssrn.com/abstract=1032034 or http://dx.doi.org/10.2139/ssrn.1032034

Jim Wong

Hong Kong Monetary Authority ( email )

3 Garden Road, 30th Floor
Hong Kong
Hong Kong

Tak-Chuen Wong (Contact Author)

Hong Kong Monetary Authority - Research Department ( email )

55/F, Two International Finance Centre,
8 Finance Street, Central,
Hong Kong
Hong Kong

Tom Fong

Hong Kong Monetary Authority ( email )

55/F, Two International Finance Centre, Central
Hong Kong
Hong Kong

Ka-fai Choi

Hong Kong Monetary Authority ( email )

3 Garden Road, 30th Floor
Hong Kong
Hong Kong

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