Competition, efficiency and stability: An empirical study of East Asian commercial banks

Abstract

This paper examines the relationships between competition, efficiency and stability in the banking systems of four East Asian countries (China, Hong Kong, Malaysia and Vietnam) over 2004–2014. The results support the traditional competition–fragility view and suggest that an increase in competition may result in a decrease in stability. Similarly, credit risk, bank size and market concentration may positively affect bank stability. By contrast, banks with higher liquidity risk and revenue diversification may become less stable. Empirical analysis suggests that banking sector stability was adversely affected by the global financial crisis. Listed banks may be less stable than their non-listed peers. The macroeconomic environment (measured in terms of inflation and GDP growth) also affects bank stability. Additionally, some important policy implications with respect to improving bank stability are recommended.