Market-power versus cost-efficiency in Thailand's banking sector in the post-crisis period (1998–2011)

The degree of competition and effect of market concentration on interest rate margins in the banking sector of Thailand are estimated using the new empirical industrial organization model. We find that the collusive behavior and the market power of banks intensified during 2005–2011, after the East Asian financial crisis. Although the estimated benefit of scale economies resulting from increased concentration is statistically insignificant, its estimated impact would offset the unfavorable effect of higher market-power associated with higher concentration.     

Performance of Thailand banks after the 1997 East Asian financial crisis

The performance of commercial banks and government-owned specialized banks in Thailand is estimated after the 1997 East Asian financial crisis. Commercial banks exhibit increasing returns to scale, whereas government-owned specialized banks exhibit decreasing returns to scale, implying further increases in bank size and market concentration in the commercial bank sector but not for government specialized banks. Cost inefficiency varies by bank and is a function of the ratio of nonperforming loans (NPLs) to total loans, equity to total assets and liquid assets to total assets, as well as the number of branches. On average, banks with fewer NPLs, that are well capitalized and with adequate liquidity are efficient. Thus, stricter rules to regulate credit risk management and ensure capital and liquidity adequacy would enhance efficiency in the banking sector. Although estimated input substitutability appears to be low, labour and loanable fund are substitutes. However, labour and physical capital as well as physical and loanable funds are complements in commercial banks. All the three inputs of labour, physical capital and loanable funds are substitutes for the government specialized banks.