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Do Regional Banks Compete or Collude? A Market Structure Analysis Under Indonesia’s Capital Regulation Threshold

In: Business and Sustainable Development in a Globalized and Digitalized Era

Author

Listed:
  • Lukmanul Hakim Aziz

    (Sultan Ageng Tirtayasa University, Faculty of Economics and Business)

  • Noer Azam Achsani

    (Institut Pertanian Bogor University, School of Business)

  • Tifani Husna Siregar

    (Interdisciplinary Research Center for Finance and Digital Economy, King Fahd University of Petroleum and Minerals)

  • Hermanto Siregar

    (Institut Pertanian Bogor University, Faculty of Economics and Management)

Abstract

This study examines whether Indonesia’s twenty-four regional development banks behave competitively or collusively following the Financial Services Authority’s decision to raise the core capital threshold to IDR 3 trillion in 2020. We categorise the banks into two groups: those below the new threshold and those at or above it. Utilising a panel Vector Error Correction Model, we analyse the relationship among profitability, market power, efficiency and market share from 2012 to 2022. Employing the sign-based classification method developed by Ye et al. (2012), we assess five competing theories of bank performance: the Structure–Conduct–Performance paradigm, Relative Market Power, Relative Efficiency Structure, Scale Efficiency Structure, and the Quiet Life Hypothesis. Our findings indicate that efficiency is a key driver of profits in lower-capital banks, whereas well-capitalised banks leverage their deposit market power; however, evidence of collusive pricing is not supported in either group.

Suggested Citation

  • Lukmanul Hakim Aziz & Noer Azam Achsani & Tifani Husna Siregar & Hermanto Siregar, 2026. "Do Regional Banks Compete or Collude? A Market Structure Analysis Under Indonesia’s Capital Regulation Threshold," Springer Proceedings in Business and Economics, in: Zafar U. Ahmed & Nhat Tan Pham (ed.), Business and Sustainable Development in a Globalized and Digitalized Era, pages 426-447, Springer.
    • Handle: RePEc:spr:prbchp:978-3-032-29346-6_21
    DOI: 10.1007/978-3-032-29346-6_21
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