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Relationship between Market Structure and Bank Performance: Empirical Evidence for Central and Eastern Europe

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Author Info

  • Csaba Móré

    ()
    (Magyar Nemzeti Bank)

  • Márton Nagy

    ()
    (Magyar Nemzeti Bank)

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    Abstract

    This study aims to assess the role of market structure in the pricing behaviour and profitability of Central and Eastern European banks. In order to determine the most important variables related to the banks' pricing behaviour and profitability, we create a simple Cournot model. Then using these exogenous variables we build non-formal equations for testing the SCP (structure-conduct-performance) and the RMP (relative market power) hypotheses. Using the data of individual banks of eight Central and Eastern European countries in the period of 1998-2001 the tests reject the SCP hypothesis, but confirm the RMP hypothesis. In addition, we show that other factors, such as costs, risks, reserve ratio as well as the depth of bank intermediation also play an important role in banks' performance.

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    File URL: http://www.mnb.hu/Root/Dokumentumtar/MNB/Kiadvanyok/mnbhu_mnbfuzetek/mnbhu_MF2003_12/wp2003_12.pdf
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    Bibliographic Info

    Paper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Working Papers with number 2003/12.

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    Length: 49 pages
    Date of creation: 2003
    Date of revision:
    Handle: RePEc:mnb:wpaper:2003/12

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    Web page: http://www.mnb.hu/
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    Keywords: bank performance; market structure; market power.;

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