TY - JOUR
T1 - Foreign participation and banking competition
T2 - Evidence from the Indonesian banking industry
AU - mulyaningsih, Tri
AU - DALY, Anne
AU - MIRANTI, Riyana
N1 - Funding Information:
We thank to two anonymous reviewers, the journal editor and the participants of the 8th Conference on Risk, Banking and Financial Stability in Bali, Indonesia for their valuable comments. The financial assistance for conducting this study was received from the Directorate of Higher Degree of Education, Ministry of Education of the Republic of Indonesia and the University of Canberra, Australia .
Publisher Copyright:
© 2015 Elsevier B.V. All rights reserved.
PY - 2015/7/26
Y1 - 2015/7/26
N2 - Foreign participation in Indonesian banking has expanded from the establishment of foreign de novobanks into the acquisition of existing local banks. The increase in foreign participation has therefore notbeen associated with a growing number of banks. This study aims to examine the competitive behaviorof foreign and local banks as a competitive banking industry is important in boosting economic efficiencyand economic growth. This study also examines the role of modes of entry of foreign banks on competi-tion, either through the establishment of foreign de novo banks or the acquisition of local banks. The recentmethodological refinements of the Panzar–Rosse method developed by Bikker et al. (2011) are employedto estimate the level of competition among local and foreign banks. Generally, the foreign banks, par-ticularly foreign de novo banks behaved more competitively than local banks, and their penetration istherefore important in creating a contestable market. This study found that in terms of assets, on averageforeign de novo banks were smaller, more efficient, and had lower overhead costs, so they could offerlower loan rates and disburse more loans. The recent consolidation in the Indonesian banking industrymay have an adverse impact on competition as it restricts the establishment of foreign de novo banks.
AB - Foreign participation in Indonesian banking has expanded from the establishment of foreign de novobanks into the acquisition of existing local banks. The increase in foreign participation has therefore notbeen associated with a growing number of banks. This study aims to examine the competitive behaviorof foreign and local banks as a competitive banking industry is important in boosting economic efficiencyand economic growth. This study also examines the role of modes of entry of foreign banks on competi-tion, either through the establishment of foreign de novo banks or the acquisition of local banks. The recentmethodological refinements of the Panzar–Rosse method developed by Bikker et al. (2011) are employedto estimate the level of competition among local and foreign banks. Generally, the foreign banks, par-ticularly foreign de novo banks behaved more competitively than local banks, and their penetration istherefore important in creating a contestable market. This study found that in terms of assets, on averageforeign de novo banks were smaller, more efficient, and had lower overhead costs, so they could offerlower loan rates and disburse more loans. The recent consolidation in the Indonesian banking industrymay have an adverse impact on competition as it restricts the establishment of foreign de novo banks.
KW - Banking competition
KW - Foreign penetration
KW - Modes of entry
UR - http://www.scopus.com/inward/record.url?scp=84961315511&partnerID=8YFLogxK
UR - http://www.mendeley.com/research/foreign-participation-banking-competition-evidence-indonesian-banking-industry
U2 - 10.1016/j.jfs.2015.02.001
DO - 10.1016/j.jfs.2015.02.001
M3 - Article
SN - 1572-3089
VL - 19
SP - 70
EP - 82
JO - Journal of Financial Stability
JF - Journal of Financial Stability
ER -