Comments on MENA Bank Competition Paper. Michael Fuchs/World Bank/AFTFP

Transcription

1 Comments on MENA Bank Competition Paper Michael Fuchs/World Bank/AFTFP

2 Policy questions Why do we care about bank competition? Competition is important to financial sector development as it is argued it may lead to: Lower prices & innovation of banking products Increased access to finance Greater bank efficiency Greater stability in the system But it is: Hard to measure and to know the right theoretical measure for bank competition- one measure usually is not enough Hard to get enough data for many metrics proposed to give reliable results and data that is disaggregated enough to give useful policy advice Hard to compare across countries

3 What does the paper do? Tracks competition in countries over time in MENA Hints at impact of policy changes of competition Suggests the lack of competition being due to poor credit information, high entry requirements & lack of competition from other financial institutions

4 Methodology Issues: H-Statistic The paper should highlight more strongly the weakness with the H-statistic, such as: Specification Authors need to show that market is in long run equilibrium Reduced form revenue equation used to estimate statistic should not be scaled by total assets (Bikker, Shaffer, Spierdijk (2009)) Rosse-Panzar-test can classify a country into one of three buckets (perfect competition, monopoly or monopolistic competition), but it is not sensitive enough to distinguish changes in competition within monopolistic competition For example between Jordan (H-stat=0.480) & Lebanon (Hstat=0.627)

5 Methodology Issues: H-Statistic Weak assumptions Homogenous cost functions across banks Identical risk profiles across banks (does not account for the fact that banks operate under uncertainty and choose their risk profiles (De Nicolo and Ariss (2009)) No market segmentation Aggregation Aggregate region-level H-statistics are difficult to interpret: banks compete in discrete national markets and H-statistic is only valid if these markets are in long-term equilibrium

6 Data Issues Bank specialization: why are Islamic banks included with commercial banks in the sample? Are they competing in the same space? Are interest expenses/income comparable between Islamic and commercial banks (interests expenses are used in calculating the H-statistic) BankScope coverage - particularly for smaller domestic banks - improves with time. Are the dynamics in the paper driven by changes in coverage or changes in the market E.g. Are banks entering a market or being reported for the first time (same logic for exit or failure to report)? E.g. If the number of banks reduces from 6 to 5, is this due to a M&A or bank exit or failure to report

7 Bank Assets (Bil USD) BankScope Data Example: Egypt Size of the sample increases over time No. of Reporting Commercial Banks BankScope Data 17 Central Bank Data Composition of the data changes over time: Most likely the data has very unbalanced pools due to coverage: pool most likely only large banks and international banks mostly likely include the first group plus many more small and medium size banks How does the paper account for this variation?

8 Start Competition Analysis and FSAP framework in Tanzania 2009 Concentration ratios of 3 largest banks, % Herfindahl indices and number of banks 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% CR - Total assets 3CR - Loans 3 CR- Deposits 3CR - Total assets 3CR - Loans 3 CR- Deposits Rosse-Panzar competition index, Transition matrix of bank size distribution, % Final Small Medium Large Small 73% 27% 0% Medium 30% 50% 20% Large 0% 13% 88%

9 Future Research 1: Segmentation Small developing banking markets are highly segmented by: Product line (corporate vs. retail) Geography- local versus national banks Cross-border services Size How do we measure competition within and across these segments? Can we estimate the H-statistic by segments E.g. Estimate H-statistic for each size quartile For cross country comparison we could use H-statistics for the same size catagory

10 Future Area of Research 2: Policy Choices What policy levers can the central bank use to manage competition? Capital requirements (consolidation) Entry requirements Ownership (governments impact) Regulation of new business lines & service delivery channels (mobile banking) Cross border banking Enabling environment (Credit bureaus, land registries, payment systems) Other lending and deposit institutions (Capital market development, barriers to entry to capital markets) Competition for deposits (placement of governments, remuneration of government deposits) Licensing restrictions (entry to be a primary or secondary dealer) Need research to inform policy makers of the appropriate policy mix