Bank Market Power and Revenue Diversification: Evidence from Selected ASEAN Countries

31 Pages Posted: 26 Oct 2011

See all articles by My Nguyen

My Nguyen

RMIT- School of Economics, Finance and Marketing

Michael T. Skully

Monash University - Department of Banking and Finance; Financial Research Network (FIRN)

Shrimal Perera

Monash University - Department of Accounting and Finance; Financial Research Network (FIRN)

Date Written: June 15, 2011

Abstract

This paper examines the association between bank market power and revenue diversification using a sample of 153 commercial banks from five Association of Southeast Asian Nations (ASEAN) member countries (Indonesia, Malaysia, the Philippines, Thailand and Vietnam). The results indicate that banks with market power (in both loan and deposit markets) earn higher income from non-traditional activities. It shows that market power allows banks to identify new growth opportunities in non-traditional activities and deliver greater bargaining capacity with their customers. This relationship, however, is non-linear suggesting that at lower degrees of market power, managers concentrate on revenue diversification strategies. In contrast, those with greater market power focus more on traditional interest-based products. We also find that this association between bank market power and revenue diversification has changed over time, suggesting that the credit losses experienced earlier, during and after the Asian financial crisis have encouraged ASEAN banks (especially those with market power in deposits) to diversify into non-traditional activities to compensate for their excessive losses. When the markets recovered and loan demand increased, however, traditional interest-based business becomes more important. These results remain consistent across all models providing robust results.

Keywords: market power, revenue diversification, ASEAN, Lerner Index

JEL Classification: G21, G28, O23

Suggested Citation

Nguyen, My and Skully, Michael T. and Perera, Shrimal, Bank Market Power and Revenue Diversification: Evidence from Selected ASEAN Countries (June 15, 2011). Available at SSRN: https://ssrn.com/abstract=1949548 or http://dx.doi.org/10.2139/ssrn.1949548

My Nguyen (Contact Author)

RMIT- School of Economics, Finance and Marketing ( email )

445 Swanston Street
Melbourne, Victoria 3001
Australia
+61 3 9925 5450 (Phone)

Michael T. Skully

Monash University - Department of Banking and Finance ( email )

900 Dandenong Road
Caulfield East, Victoria 3145
Australia
+61 3 9903 2407 (Phone)
+61 3 9903 1443 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Shrimal Perera

Monash University - Department of Accounting and Finance ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

HOME PAGE: http://www.buseco.monash.edu.au/aaf/staff/perera.html

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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