Macro Environment of Commercial Banking in Developing Countries - Are They Really Conducive in Achieving Competitiveness?
Journal Title: IOSR journal of Business and Management - Year 2018, Vol 20, Issue 10
Abstract
The degree of competition is an important aspect of financial sector development and, in turn, economic growth. However banks in the developing countries are competing in an environment where the financial infrastructure or the prerequisites for such competition is scarce. Hence, the present paper aims at assessing and identifying the macroeconomic forces that drive competition in the banking sector of Sri Lanka. The study covers both micro and macro level data for all 25 banks in Sri Lankan commercial banking sector for the period 1996 to 2015. The econometric model developed in this study comprised six major categories of variables; bank market structure, contestability, inter-industry competition, regulatory policies, bank efficiency and economic development. The study found a strong evidence to support a positive effect market structure suggesting state bank concentration promotes competitive behavior of other banks in the short run. Overall, the study identifies the macro environment with improved foreign bank performance, broadening financial access to the mass (branch expansion) and increased competition pressure coming from non banking sector financial industries is conducive for bank competition. Further, findings of the study revealed that the macro environment characterized with higher level of development in the capital market, increasing Central Bank policy rates, improving state bank efficiency and high inflationary pressure restrain the ability of the banking sector to compete in the market. Hence, study highlights the need for creating a macro environment with continuous financial reforms and proper monitoring mechanisms to facilitate competition in the banking sector in order to reach the favorable outcome of such competition.
Authors and Affiliations
H. D. D. Champika Liyanagamage
Keywords
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- EP ID EP413055
- DOI 10.9790/487X-2010037887.
- Views 82
- Downloads 0
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