Following from here, there is the need for further study in the area of competition and efficiency in the banking industry. Sunil and Binsheng [19], investigated the impact of financial reforms on competitiveness and production efficiency of the banking sector, as well as the short-term and long-term impact on economic growth, in Egypt during — The results of the study suggested that reforms have a positive and significant effect on competitiveness and production efficiency.
Also, the evidence shows that state-owned banks are generally less competitive than private banks and foreign banks are less competitive than domestic banks.
The average x-inefficiency of Egyptian banks is around 30 per cent, which is comparable to those reported for other African countries. Finally, there is evidence to suggest a significant relationship between financial bank productive efficiency and economic growth in the short run but not in the long run.
Overall, the results support the argument for continuing the financial sector reform programme in Egypt. Simpasa [20], analysed the competitive nature of the Tanzanian banking industry from to Utilizing a rich bank level data set, the study employed the Panzar—Rosse methodology to compute the competitive index, taking into account risk, efficiency, regulatory and macroeconomic factors.
The results showed that banks in Tanzania earned their income under conditions of oligopolistic conduct. Moreover, the competitive index derived from an interest revenue equation was not significantly different from that obtained using an aggregate revenue measure. This suggests that the degree of contestability from traditional intermediation activities approximates overall bank behaviour. The overall message is that greater market contestability can be achieved by adopting measures aimed at stimulating competitiveness in the banking sector, including consolidating gains on the macroeconomic front and allowing more foreign bank entry so as to increase the spread of banking services.
Zhao and Murinde [21], investigated the interrelationships among bank competition, risk taking and efficiency during banking sector reforms in Nigeria — In the study, three stages were involved in the modeling procedure. In the first stage, the study measure bank productive efficiency, using data envelopment analysis, and the evolution of bank competition, using conjectural variations CV methods; the second stage involve using the CV estimates to test whether regulatory reforms influence bank competition; and the third stage investigated the impact of the reforms on bank behaviour.
The evidence suggested that deregulation and prudential regulation influence bank risk taking and bank productive efficiency directly direct impact and via competition indirect impact. Furthermore, it is found that as competition increases, excessive risk taking decreases and efficiency increases.
Overall, the evidence on Nigeria affirms policies that foster bank competition. Somoye [22], examined the performances of government induced banks consolidation and macro- economic performance in Nigeria in a post-consolidation period. The paper analysed the data obtained from published audited accounts of twenty 20 out of twenty-five 25 banks that emerged from the consolidation exercise and data from the Central Banks of Nigeria CBN.
The analysis revealed that the consolidation programme has not improved the overall performances of banks significantly and also has contributed marginally to the growth of the real sector for sustainable development.
The study concluded that banking sector is becoming competitive and market forces are creating an atmosphere where many banks simply cannot afford to have weak balance sheets and inadequate corporate governance.
The study further posited that consolidation of banks may not necessarily be a sufficient tool for financial stability for sustainable development and this confirms the study by Megginson and Somoye It then recommended that bank consolidation in the financial market must be market driven to allow for efficiency in the sector. Also, the study recommended that researchers should begin to develop a new framework for financial market stability as opposed to banking consolidation policy.
Brownbridge [23], studied the impact of public policy on the banking system in Nigeria. The study concentrated on the commercial and merchant banks which together accounted for 85 percent of the total assets of the financial institutions in Nigeria, excluding those held by the Central Bank of Nigeria CBN.
Also, the efficacy of financial liberalisation and other financial sector reforms to enhance the efficiency of intermediation in the banking markets has been limited, which left large sections of the banking industry in financial distress.
Some of the reforms introduced were inappropriately sequenced and others were not implemented in a consistent manner. Methodology In order to examine the relationship between the degree of competition and the level of efficiency of commercial banks in Nigeria, the study employed the data for the period — The data were obtained from the annual report and statement of accounts of fifteen commercial banks in Nigeria.
The model for the study is as specified: 1 where: ROA is the return on asset and a proxy for efficiency variable INTERM is the intermediation ratio and a proxy for competition variable TA represents total asset of the banks NPL represents non performing loans of the banks EQ represents the total equity of the banks All the variables used in the model are in their log form in other to bring the variables to the same level.
A priori, it is expected that the intermediation ratio, total equity of the banks, total assets of the banks will be positively related to return on asset, while non-performing loan will possess a negative relationship.
Several studies have used the value of H-statistic as a measure of competition in regression analysis to determine its effect on efficiency[9, 10, 24], but in this study H-statistic could not be used because, its value could not be determined on yearly basis due to the problem of data availability. As a result of this, we use a proxy for the degree of competition. To proxy the structure of the banking system, which is a measure of the degree of competition, we use the intermediation ratio measured by the ratio of total loans to total deposits[10, 13].
Other variables included in the model are total assets Bank size , Equity of the banks and non-performing loan. Each of the variables is expected to influence the level of efficiency of the commercial banks in Nigeria. Empirical Results The results obtained from the pooled least square estimate with fixed effect revealed that intermediation ratio is statistically significant with a value of 2.
This conforms to a priori expectation because, this ratio is expected to have a positive relationship on the level of efficiency as higher ratio will lower the quantity of deposits needed to produce loans.
This in essence implies that banks with more deposit have the capacity to give out more loans to their customers which will increase the level of competition among the banks and invariably leads to increased efficiency. This result is in contrast with the negative relationship between competition and efficiency in the EU Banking Sector[10] though a priori, the expected relationship is positive.
Also, the higher the deposit generated by the banking sector, the more loan that will be available to lend out to the customers. Table 1. This is expected because non performing loan will reduce the profitability of the banking industry as part of the profit of the firm will be set aside as a provision for such loan.
Our result equally shows that the R 2 obtained from the estimated model is very low with a value of 0. This is because the proportion of variance that cannot be explained is usually higher in a cross section analysis than in time series analysis. Also, cross sectional studies consist of a number of different heterogeneous objects of investigation unlike time series data where only object of investigation is considered over a given period of time Resinger [25].
Also, the Durbin Watson statistic did not show any evidence of auto correction in the model as the value is close to 2. To check for the robustness of the pooled least square estimate, the model was further estimated using the Panel Generalized Method of Moments GMM approach.
This in essence means that the level of efficiency of the banking industry in the previous period will definitely impact on the level of efficiency in the current period. The intermediation ratio which is a measure of competition in this study has positive relationship with the level of efficiency, meaning that increased competition in the sector will improve the level of efficiency in the industry.
This supports the view that contestability determines effective competition which invariably influences efficiency Classens and Leaven [26]. The variable total asset TA follows the same pattern with the result in the Pooled Least Square estimate.
The variable is statistically significant but shows negative relationship with the level of efficiency. This may be as a result of the dominance of five largest banks which controls about 45 percent of the total assets or the ten largest banks which controls over 72 percent of the total assets of the Nigerian banks.
Also, this level of control might have significantly reduced the degree of competition in the sector which invariably led to low level of efficiency. Another reason may equally be related to the mismanagement of fund by the managers and directors of the bank ownership structure , government policy changes, among others. Table 2. From this computation the null hypothesis of over identifying restrictions are valid.
Essentially, the results showed that competition is positively related to efficiency and statistically significant during the sample period. As competition increases, the level of profitability of the banks also increases which translates to the increase in the level of efficiency of the banks.
Also, the acquisition of the inefficient banks by the efficient ones has led to increased efficiency in the banking sub sector. Conclusions The paper examined the relationship between competition and efficiency in the Nigerian banking sub sector for the period — Based on the data obtained from fifteen commercial banks in Nigeria, the specified model was estimated using both pooled least squares and Panel Generalised Method of Moments GMM.
The results revealed that competition in the Nigerian banking sector positively influenced the level of efficiency. References [1] Shumpeter, J. Cambridge, Harvard, University Press. New York, Oxford University Press. An Unpublished M. Thesis, University of Ife. Journal of Interdisciplinary Economics. Fried, C. Lovell, P. IFO Studien 4, — Pruteanu-Podpiera, A. Journal of Banking and Finance, 20, — Kredit and Kapital 36, 1 — Discussion Paper, Essex Finance Centre.
No The Manchester School, 74 4 , pp. Journal of Money Credit and banking, Vol. African Development Review, Vol. Are you looking to improve your online brand presence or generate more leads and traffic?
Do you want to deliver a different type of customer experience or generate more social followers, likes, and shares? Although this might seem obvious, defining your goals and objectives narrows the scope of your competitive analysis efforts and allows for the purposeful collection of data to analyze and use for future strategies.
Markets can be defined geographically, as determined by specific ZIP codes and block groups, or by population, which is defined by average age, income brackets, and educational attainment. Once you have a specific target market in mind, create a comprehensive list of banks and competing institutions in that market.
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For further information, you can read up on ways to create an effective customer feedback system , learn how to start asking for reviews , and foster an online presence through community management. The financial services industry is disruptive, and banking is not immune to the frequent changes permeating the market.
The emergence of robo-advisors like Ellevest, Betterment, and Sofi, as well as apps such as Alipay, WeChat, and Amazon Cash has introduced non-traditional competitors that force the banking industry to be responsive to a new and previously unseen set of customer needs.
Due to its disruptive nature, it is imperative that banks stay versed on all new industry trends. As new topics show up and gain traction, monitoring the appearance of emerging competitors can provide insight into the future of the industry.
The digital transformation in financial services is easily the largest, and most successful, trend banking has seen in decades.
An Accenture study found that digitally-focused banks had a larger gap between cost and revenue than their more traditional competitors.
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