Market Structure, Income Diversity, and Stability: Empirical Study of Banking Industry Indonesia

Hadi Satria Ganefi, Wita Juwita Ermawati, Dedi Budiman Hakim

Abstract


Banking as an intermediary institution has an essential role in the world of economy. Apart from providing financing to the real sector, banks currently still dominate the Indonesian financial system with an asset share of 77.25%. Based on the existing conditions, Indonesia's banking market is still dominated by several banks, especially in the BUKU 4 bank group. This is to indicate a bank of Indonesia is generally still facing relatively low competition. In addition, the large concentration makes it necessary for banks to divert their main activities by diversifying into non-traditional activities in carrying out their operations. This study aims to analyze how the market competition in Indonesia during the period 2014-2019 and examine the effect of competition and diversification income on stable banks. The panzer rosse model is used to analyze the market structure; for diversification, this research uses calculations with the Herfindahl Hirshman Index while stability uses two risk measures, namely NPL and Z Score, as a proxy for stability. The results show that, in general, the banking industry is under monopolistic competition. Competition has a significant effect on stability banks as measured through NPL risk, and this research supports the competition-fragility paradigm. A meanwhile, diversification income variables have not to effect on stability.


DOI: 10.26905/jkdp.v25i3.5887



Keywords


Keywords: Competition, Panzar Rosse, Diversification, Stability, Risk Taking

Full Text:

PDF

References


Abuzayed, B., Al-Fayoumi, N., & Molyneux, P. (2018). Diversification and bank stability in the GCC. Journal of International Financial Markets, Institutions, and Money, 17-43.

Amidu., S. (2013). Does bank competition and diversification lead to greater stability? Review of Development Finance 3, 152–166.

Apriadi, I., Sembel, R., Santosa, P. W., & Firdaus, M. (2017). Kompetisi dan Stabilitas Perbankan Indonesia Suatu Pendekatan Analisis Panel Vector Autoregression. Jurnal Manajemen 21(1), 33-54.

Athoillah, M. (2010). Struktur Pasar Industri Perbankan Indonesia: Rosse-Panzar Test. Journal of Indonesian Applied Economics 4(1), 1-10.

Azmi, W., Ali, M., Arshad, S., & Rzvi, S. A. (2019). Intricacies of competition, stability, and diversification: Evidence from dual banking economies. Economic Modelling 83, 111-126.

Berger, A. a. (1997). "Problem loans and cost efficiency in commercial banks". Journal of Banking and Finance 21(6), 849-870.

Bikker JA, H. K. (2000). Competition, Concentration, and their Reletionship: An Empirical Analysis of the Banking Industry. Journal of Banking and Finance. 26, 2191-2214.

Bikker JA, H. K. (2002). Measure of Competition and Concentration in the Banking Industry : A Review of the Literature. JcoFin 9(2), 53-98.

Bikker., J. S. (2006). Misspecification of the Panzar-Rosse Model : Assesing Competition in the banking industry. Working Paper 114.

Boyd, J. D. (2005). The theory of bank risk taking and competition revisited. Journal of Finance 60(3), 1329–1343.

Brunnermeier M K, D. G. (2020). Banks' Non-interest Income and Systemic Risk. The Review of Corporate Finance Studies 9(2), 229-255.

Bustaman Y, E. I. (2017). Impact of Interest Margin, Market Power and Diversification Strategy on Banking Stability: Evidence from ASEAN-4. Asian Journal of Business and Accounting 10(1), 1-44.

Cihak, M., & Hesse, H. (2007). Islamic Bank and Financial Stability: an empirical analysis. Journal Financial Service 38, 95-113.

Clark, E., Radić, N., & Sharipova, A. (2017). Bank Competition and Stability in the CIS markets. Journal of International Financial Markets, Institutions & Money 54, 190-203.

Fu, X. L. (2014). Bank competition and financial stability in Asia Pacific. Journal of Banking & Finance , 38(1), 64-77.

Hafidiyah N.M, T. I. (2016). Revenue Diversification, Performance, and Risk Bank: Evidence From Indonesia. Jurnal Dinamika Manajemen 7(2), 139-148.

Hamza, H., & Kachtouli, S. (2014). Competitive conditions and market power of Islamic and conventional commercial banks. Journal of Islamic Accounting and 5(1), 29-46.

Ibrahim, M., Salim, K., & Abojeib, M. (2018). Structural Changes, Competition and Bank Stability in Malaysia's Dual Banking System. Economic Systems, https://doi.org/10.1016/j.ecosys.2018.09.001.

Kinanti, S. A. (2017). Pengaruh BOPO, LDR dan ROA terhadap NPL Pada Bank Persero yang Terdaftar di Bursa Efek Indonesia (BEI) Periode 2006-2012. Jurnal Ilmu Manajemen 5(1), 1-9.

Leaven, L., & Levine, R. (2009). Bank Governance, Regulation and Risk Taking. Journal Financial Economic 93, 259-275.

Lee Chien-Chiang., H. F.-S., & lee, c.-c. (2014). The relationship between revenue diversification and Bank. Japan and the World Economy 29, 18-35.

Lepetit, L., Nys, E., Rous, P., & Tarazi, A. (2008). Bank income structure and risk: An empirical analysis of European banks. Journal of Banking and Finance 32, 1452–1467.

Louhichi, L. B. (2018). Market-power,stability and risk taking: ananalysis surrounding the riba-free banking . Review o fAccounting and Finance , 1475- 7702.

Mayasari, L. (2012). Analisis Pengaruh Kebijakan Arsitektur Perbankan Indonesia (API) Terhadap Struktur, Perilaku Dan Kinerja Industri Perbankan Indonesia [tesis]. Depok: Universitas Indonesia.

Moch, N. (2013). Competition in fragmented markets: New evidence from the German. Journal of Banking & Finance 37, 2908–2919.

Molyneux, P., Fu, X., & Lin, Y. (2014). Bank Competition and Financial Stability in Asia Pacific. Journal of Banking and Finance 38, 64-77.

Mustafa A, T. V. (2017). Estimation of the banking sector competition in the CEE countries: The Panzar-Rosse approach. https://doi.org/10.18045/zbefri.2017.2.459, 459-485.

Navin N, S. P. (2019). Market Structure and Competition in the Indian Microfinance Sector. The Journal for Decision Makers 44 (4), 167-181.

Nguyen, M. S. (2012). Market power, revenue diversification and bank stability:. Journal of International Financial Markets, Institutions & Money, 897-912.

Noman, M. H. (2017). Does competition improve financial stability of the banking sector in ASEAN countries? An empirical analysis. PLoS ONE 12(5): e0176546.https://doi. org/10.1371/journal.pone.0176546.

OJK, O. (2014-2018, Diunduh Februari 17). ojk.go.id. Retrieved from Otoritas Jasa Keuangan [Internet]: https://www.ojk.go.id/id/kanal/perbankan/data- dan-statistics/laporan-keuangan-perbankan/Default.aspx

Revida, R. (2019). Persaingan antar Bank, Diversifikasi Sumber Pendapatan dan Stabilitas Bank pada Bank Umum Syariah dan Konvensional di Indonesia [Tesis]. Surakarta: Universitas Negeri Surakarta.

Sawada, M. (2013). How does the stock market value bank diversification? empirical evidence from japanese Bank. Pacific Basin Finance Journal 25, 40-61.

Sukirno, S. (2011). Mikro Ekonomi Terori Pengantar. Jakarta: Raja Grafindo Persada. Trinugroho I, R. T. (2018). Competition, diversification, and bank margins: Evidence

from Indonesian Islamic rural banks. Borsa Istanbul Review 18(4), 349-358.

Ul-Huq, S. M. (2019). Can BRICS and ASEAN-5 emerging economies benefit from bank diversification? Journal of Financial Regulation and Compliance 27(1), 1358-1988.

Ventouri. (2018). Bank competition and regional integration : Evidence from ASEAN nations. Review of Development Finance https://doi.org/10.1016/j.rdf.2018.08.002.

Wibowo. (2016). Stabilitas Bank, Tingkat Persaingan Antar Bank dan Diversifikasi Sumber Pendapatan: Analisis Per Kelompok Bank di Indonesia. Jurnal Manajemen Teknologi 15 (2), 172-195 .

Wibowo, I. E., & Wibowo, B. (2017). The Effect of Competition Levels and Banking Concentration on Systemic Risk: Indonesia's Case. Indonesian Capital Market Review, 85-100.




DOI: https://doi.org/10.26905/jkdp.v25i3.5887

Refbacks

  • There are currently no refbacks.


Bookmark and Share


Jurnal Keuangan dan Perbankan (Journal of Finance and Banking)

Diploma Program of Banking and Finance, Faculty of Economics and Business, University of Merdeka Malang

Published by University of Merdeka Malang

Mailing Address:
2nd floor Finance and Banking Building, Jl. Terusan Raya Dieng No. 57 Malang, East Java, Indonesia
Phone: +62 813-3180-1534
Email: jkp@unmer.ac.id

This work is licensed under a Creative
Commons Attribution-ShareAlike 4.0