IDEAS home Printed from https://ideas.repec.org/p/rbp/wpaper/2018-005.html
   My bibliography  Save this paper

Competitive Environment and Financial Stability in the Peruvian Microfinance System

Author

Listed:
  • Huayta, Katia

    (Superintendencia de Banca, Segurosy AFP)

  • Garcia, Antonella

    (Superintendencia de Banca, Segurosy AFP)

  • Sotomayor, Narda

    (Superintendencia de Banca, Segurosy AFP)

Abstract

This paper examines the relationship between competition and financial stability for Peruvian microfinance institutions, during the 2002-2016 period. Using the Panzar and Rosse H-statistic as well as the Boone indicator for the evaluation of competition, and the Roy Z-score as a proxy for financial stability, we find a non-linear relationship (inverted U-shaped) between competition and financial stability, which validates the Martínez-Miera and Repullo approach. Furthermore, we find that competition in the Peruvian microfinance system might increase even when market concentration increases; and, according to the H-statistic, the market structure that best fits this system is monopolistic competition.

Suggested Citation

  • Huayta, Katia & Garcia, Antonella & Sotomayor, Narda, 2018. "Competitive Environment and Financial Stability in the Peruvian Microfinance System," Working Papers 2018-005, Banco Central de Reserva del Perú.
    • Handle: RePEc:rbp:wpaper:2018-005
    as

    Download full text from publisher

    File URL: https://www.bcrp.gob.pe/docs/Publicaciones/Documentos-de-Trabajo/2018/documento-de-trabajo-005-2018.pdf
    File Function: Application/pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Yildirim, H. Semih & Philippatos, George C., 2007. "Restructuring, consolidation and competition in Latin American banking markets," Journal of Banking & Finance, Elsevier, vol. 31(3), pages 629-639, March.
    2. Panzar, John C & Rosse, James N, 1987. "Testing for "Monopoly" Equilibrium," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 443-456, June.
    3. Beck, Thorsten & De Jonghe, Olivier & Schepens, Glenn, 2013. "Bank competition and stability: Cross-country heterogeneity," Journal of Financial Intermediation, Elsevier, vol. 22(2), pages 218-244.
    4. Tabak, Benjamin M. & Fazio, Dimas M. & Cajueiro, Daniel O., 2012. "The relationship between banking market competition and risk-taking: Do size and capitalization matter?," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3366-3381.
    5. Jan Boone, 2008. "A New Way to Measure Competition," Economic Journal, Royal Economic Society, vol. 118(531), pages 1245-1261, August.
    6. Stijn Claessens & Luc Laeven, 2004. "What drives bank competition? Some international evidence," Proceedings, Federal Reserve Bank of Cleveland, pages 563-592.
    7. Gianni De Nicolo & Elena Loukoianova, 2007. "Bank ownership, market structure, and risk," Proceedings 1058, Federal Reserve Bank of Chicago.
    8. Yeyati, Eduardo Levy & Micco, Alejandro, 2007. "Concentration and foreign penetration in Latin American banking sectors: Impact on competition and risk," Journal of Banking & Finance, Elsevier, vol. 31(6), pages 1633-1647, June.
    9. Demsetz, Harold, 1973. "Industry Structure, Market Rivalry, and Public Policy," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 1-9, April.
    10. Michiel van Leuvensteijn & Jacob Bikker & Adrian van Rixtel & Christoffer Kok Sørensen, 2011. "A new approach to measuring competition in the loan markets of the euro area," Applied Economics, Taylor & Francis Journals, vol. 43(23), pages 3155-3167.
    11. Molyneux, Philip & Thornton, John, 1992. "Determinants of European bank profitability: A note," Journal of Banking & Finance, Elsevier, vol. 16(6), pages 1173-1178, December.
    12. Céspedes-Reynaga, Nikita & Orrego, Fabrizio, 2014. "Competencia de intermediarios financieros en Perú," Working Papers 2014-010, Banco Central de Reserva del Perú.
    13. Mr. Martin Cihak & Simon Wolfe & Mr. Klaus Schaeck, 2006. "Are More Competitive Banking Systems More Stable?," IMF Working Papers 2006/143, International Monetary Fund.
    14. David Martinez-Miera & Rafael Repullo, 2010. "Does Competition Reduce the Risk of Bank Failure?," Review of Financial Studies, Society for Financial Studies, vol. 23(10), pages 3638-3664, October.
    15. Michiel van Leuvensteijn & Jacob Bikker & Adrian van Rixtel & Christoffer Kok Sørensen, 2011. "A new approach to measuring competition in the loan markets of the euro area," Applied Economics, Taylor & Francis Journals, vol. 43(23), pages 3155-3167.
    16. Jan Boone, 2008. "A New Way to Measure Competition," Economic Journal, Royal Economic Society, vol. 118(531), pages 1245-1261, August.
    17. Beck, Thorsten, 2008. "Bank competition and financial stability : friends or foes ?," Policy Research Working Paper Series 4656, The World Bank.
    18. Robert Marquez, 2002. "Competition, Adverse Selection, and Information Dispersion in the Banking Industry," Review of Financial Studies, Society for Financial Studies, vol. 15(3), pages 901-926.
    19. Bourke, Philip, 1989. "Concentration and other determinants of bank profitability in Europe, North America and Australia," Journal of Banking & Finance, Elsevier, vol. 13(1), pages 65-79, March.
    20. John H. Boyd & Gianni De Nicoló, 2005. "The Theory of Bank Risk Taking and Competition Revisited," Journal of Finance, American Finance Association, vol. 60(3), pages 1329-1343, June.
    21. Mr. Gianni De Nicolo & Abu M. Jalal & John H. Boyd, 2006. "Bank Risk-Taking and Competition Revisited: New Theory and New Evidence," IMF Working Papers 2006/297, International Monetary Fund.
    22. Benston, George J & Hanweck, Gerald A & Humphrey, David B, 1982. "Scale Economies in Banking: A Restructuring and Reassessment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(4), pages 435-456, November.
    23. Luis Gutiérrez de Rozas, 2007. "Testing for competition in the Spanish banking industry: The Panzar-Rosse approach revisited," Working Papers 0726, Banco de España.
    24. Salas, Vicente & Saurina, Jesus, 2003. "Deregulation, market power and risk behaviour in Spanish banks," European Economic Review, Elsevier, vol. 47(6), pages 1061-1075, December.
    25. Dermine, J., 1986. "Deposit rates, credit rates and bank capital : The Klein-Monti Model Revisited," Journal of Banking & Finance, Elsevier, vol. 10(1), pages 99-114, March.
    26. Raúl Osvaldo Fernández & Jesús G. Garza-García, 2015. "The relationship between bank competition and financial stability: a case study of the Mexican banking industry," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(1), pages 103-120, May.
    27. Boyd, John H. & Graham, Stanley L. & Hewitt, R. Shawn, 1993. "Bank holding company mergers with nonbank financial firms: Effects on the risk of failure," Journal of Banking & Finance, Elsevier, vol. 17(1), pages 43-63, February.
    28. Hannan, Timothy H & Hanweck, Gerald A, 1988. "Bank Insolvency Risk and the Market for Large Certificates of Deposit," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(2), pages 203-211, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Giovanna Aguilar & Jhonatan Portilla, 2020. "Determinants of Market Power in the Peruvian Regulated Microfinance Sector," Journal of Industry, Competition and Trade, Springer, vol. 20(4), pages 657-688, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Florian Leon, 2015. "What do we know about the role of bank competition in Africa?," CERDI Working papers halshs-01164864, HAL.
    2. Craig, Ben R. & Dinger, Valeriya, 2013. "Deposit market competition, wholesale funding, and bank risk," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3605-3622.
    3. Noman, Abu Hanifa Md. & Gee, Chan Sok & Isa, Che Ruhana, 2018. "Does bank regulation matter on the relationship between competition and financial stability? Evidence from Southeast Asian countries," Pacific-Basin Finance Journal, Elsevier, vol. 48(C), pages 144-161.
    4. Jiménez, Gabriel & Lopez, Jose A. & Saurina, Jesús, 2013. "How does competition affect bank risk-taking?," Journal of Financial Stability, Elsevier, vol. 9(2), pages 185-195.
    5. Tabak, Benjamin M. & Fazio, Dimas M. & Cajueiro, Daniel O., 2012. "The relationship between banking market competition and risk-taking: Do size and capitalization matter?," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3366-3381.
    6. El Moussawi, Chawki & Mansour, Rana, 2022. "Competition, cost efficiency and stability of banks in the MENA region," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 143-170.
    7. Diana Zigraiova & Tomas Havranek, 2016. "Bank Competition And Financial Stability: Much Ado About Nothing?," Journal of Economic Surveys, Wiley Blackwell, vol. 30(5), pages 944-981, December.
    8. Leroy, Aurélien & Lucotte, Yannick, 2017. "Is there a competition-stability trade-off in European banking?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 46(C), pages 199-215.
    9. Albaity, Mohamed & Mallek, Ray Saadaoui & Noman, Abu Hanifa Md., 2019. "Competition and bank stability in the MENA region: The moderating effect of Islamic versus conventional banks," Emerging Markets Review, Elsevier, vol. 38(C), pages 310-325.
    10. González, Luis Otero & Razia, Alaa & Búa, Milagros Vivel & Sestayo, Rubén Lado, 2017. "Competition, concentration and risk taking in Banking sector of MENA countries," Research in International Business and Finance, Elsevier, vol. 42(C), pages 591-604.
    11. Mamonov, Mikhail, 2012. "The impact of market power of Russian banks on their credit risk tolerance: A panel study," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 28(4), pages 85-112.
    12. Brei, Michael & Jacolin, Luc & Noah, Alphonse, 2020. "Credit risk and bank competition in Sub-Saharan Africa," Emerging Markets Review, Elsevier, vol. 44(C).
    13. Ferdaous Bahri & Taher Hamza, 2020. "The Impact of Market Power on Bank Risk-Taking: an Empirical Investigation," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 11(3), pages 1198-1233, September.
    14. Tan, Yong, 2017. "The impacts of competition and shadow banking on profitability: Evidence from the Chinese banking industry," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 89-106.
    15. Olszak, Małgorzata & Świtała, Filip & Kowalska, Iwona, 2013. "Competition in commercial banks in Poland – analysis of Panzar-Rosse H-statistics," MPRA Paper 53782, University Library of Munich, Germany.
    16. Saif-Alyousfi, Abdulazeez Y.H. & Saha, Asish & Md-Rus, Rohani, 2020. "The impact of bank competition and concentration on bank risk-taking behavior and stability: Evidence from GCC countries," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    17. Maria Karadima & Helen Louri, 2019. "Non-performing loans in the euro area: does market power matter?," Working Papers 271, Bank of Greece.
    18. Klaus Schaeck & Martin Cihák, 2014. "Competition, Efficiency, and Stability in Banking," Financial Management, Financial Management Association International, vol. 43(1), pages 215-241, March.
    19. Tabak, Benjamin M. & Gomes, Guilherme M.R. & da Silva Medeiros, Maurício, 2015. "The impact of market power at bank level in risk-taking: The Brazilian case," International Review of Financial Analysis, Elsevier, vol. 40(C), pages 154-165.
    20. Kasman, Saadet & Kasman, Adnan, 2015. "Bank competition, concentration and financial stability in the Turkish banking industry," Economic Systems, Elsevier, vol. 39(3), pages 502-517.

    More about this item

    Keywords

    SVARs; Competition; Panzar and Rosse H-statistic; Boone indicator; relevant market; financial stability; Z-score; microfinance;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rbp:wpaper:2018-005. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Research Unit (email available below). General contact details of provider: https://edirc.repec.org/data/bcrgvpe.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.