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

Author

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  • Csaba Móré

    (Magyar Nemzeti Bank)

  • Márton Nagy

    (Magyar Nemzeti Bank)

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.

Suggested Citation

  • Csaba Móré & Márton Nagy, 2003. "Relationship between Market Structure and Bank Performance: Empirical Evidence for Central and Eastern Europe," MNB Working Papers 2003/12, Magyar Nemzeti Bank (Central Bank of Hungary).
    • Handle: RePEc:mnb:wpaper:2003/12
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    File URL: http://www.mnb.hu/letoltes/wp2003-12.pdf
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    References listed on IDEAS

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    1. Demirguc, Asli & Huizinga, Harry, 1999. "Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence," The World Bank Economic Review, World Bank, vol. 13(2), pages 379-408, May.
    2. Davis, E. Philip & De Bandt, Olivier, 1999. "A cross-country comparison of market structures in European banking," Working Paper Series 7, European Central Bank.
    3. Lloyd-Williams, D. M. & Molyneux, Phil & Thornton, John, 1994. "Market structure and performance in Spanish banking," Journal of Banking & Finance, Elsevier, vol. 18(3), pages 433-443, May.
    4. Vander Vennet, Rudi, 2002. "Cost and Profit Efficiency of Financial Conglomerates and Universal Banks in Europe," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 254-282, February.
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    Cited by:

    1. Bank for International Settlements, 2006. "The banking system in emerging economies: how much progress has been made?," BIS Papers, Bank for International Settlements, number 28.
    2. Dániel Holló & Márton Nagy, 2006. "Bank Efficiency in the Enlarged European Union," BIS Papers chapters, in: Bank for International Settlements (ed.), The banking system in emerging economies: how much progress has been made?, volume 28, pages 217-35, Bank for International Settlements.
    3. Qichang Ye & Zongling Xu & Dan Fang, 2012. "Market structure, performance, and efficiency of the Chinese banking sector," Economic Change and Restructuring, Springer, vol. 45(4), pages 337-358, November.
    4. Karpetis Christos & Papadamou Stefanos & Varelas Erotokritos, 2017. "The Role of the Number of Banks on Debt Dynamics: Evidence from Eurozone Countries," Review of Economics, De Gruyter, vol. 68(1), pages 41-62, April.

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    More about this item

    Keywords

    bank performance; market structure; market power.;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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