Competitiveness, efficiency and convergence in the ASEAN banking market

The regional coordination toward financial integration of the ASEAN economies started in the aftermath of the 1997 Asian crisis. Along with banking structural reforms in individual countries, several regional financial integration initiatives were launched to promote regional financial stability and economic growth. This thesis investigates the impact of national banking structural reforms and ASEAN regional financial integration on bank efficiency and performance. It examines the similarity and convergence properties of the banking systems across the major ASEAN economies from two aspects, namely bank efficiency and bank competitiveness. This thesis contains three empirical essays Chapter 3 examines the cost efficiencies of ASEAN banks by using Battese and Coelli (1995) Stochastic Frontier Approach (SFA). The cost efficiency scores are then used to test for efficiency convergence properties. The ASEAN banking markets have been found to be converging at the aggregate level, but lack convergence at the micro individual bank level. The importance of individual banks is further proved by a single country bank efficiency study on Indonesia in Chapter 4, using an alternative method known as non-parametric DEA with Simar and Wilson (2007) double bootstrap method. In Chapter 5, the banking market competitiveness is modelled by the new empirical industrial organization (NEIO) non-structural approach, Panzar-Roasse (PR) reduced-form revenue model. The degree of similarity in banking market competitiveness across major ASEAN countries is assessed by comparing the estimated //-statistics. The ASEAN banking markets have been found to differ a lot in terms of competitive structures and have experienced very different evolution processes of market structure with a weak convergence tendency. However, certain degree of contestability has been found by examining the relationship between market competitiveness and market concentration. The research of this thesis does not find strong evidence for improvement in bank performance and banking market convergence, although some positive aspects are discovered. The degree of banking market integration for ASEAN countries is still relatively low