Bank market power drivers: comparative insights from India and Bangladesh

What the paper says

Purpose The study aims to make a comparative assessment of the degree of market power for listed commercial banks operating in India and Bangladesh and identify various bank-specific market structures and macroeconomic determinants of market power. Design/methodology/approach The study relied on secondary data from 2011 to 2022 to assess the market power of 48 listed commercial banks in India and Bangladesh, employing the adjusted Lerner index (ALI) and the generalized method of moments (GMM) regression technique to explore the factors influencing market power. Findings The findings demonstrate that Indian banks possess more market power than their counterparts in Bangladesh and bank capitalization, diversification, operational inefficiency (OI) and gross domestic product (GDP) growth rate are crucial determinants of market power for both economies. Research limitations/implications The result provides significant takeaways for the respective country regulators and banks. The Reserve Bank of India (RBI) should implement measures to reduce market power. In contrast, the Bangladesh Bank (BB) should carefully monitor the increasing trend of competition and look into possibilities of bank consolidation without hampering the competitive agenda. Further, banks in both economies need to focus on operational cost-cutting. Originality/value This study is among the first to compare market power and its determinants for listed commercial banks of India and Bangladesh. It has also incorporated a new variable, technology, alongside other established determinants.