Impact of Structural Changes on Bank Competition in Dual Banking Industry

ABSTRACT The banking industry in Malaysia has undergone a change in its market structure, especially in terms of competition due to several factors such as the implementation of the merger program, restructuring of the Islamic banking operations, liberalization and technological advancement. Therefore, this study is conducted to measure the changes in the degree of competition in the Malaysian dual banking due to structural changes occurring in the industry. The Panzar-Rosse (PR) method has been used to measure the degree of competition in the Malaysian dual banking market for the period 1997-2016. Present study uses static panel data estimation to estimate the developed models. The value of H-statistics indicates that Islamic and conventional banks operate in monopolistic competition market structure. The findings show that structural changes have increased the level of competition in the Malaysian banking industry. The results of the study show that policy changes made by Bank Negara Malaysia have improved the level of competition in the Islamic and conventional banking markets. Knowledge of competitive issues is crucial so that policy makers may formulate new policies for the banking industry that suit the current market structure. Keywords: Bank; competition; Islamic banking; market structure; Panzar-Rosse model. ABSTRAK Industri perbankan di Malaysia telah mengalami perubahan dalam struktur pasaran terutamanya dari segi darjah persaingan kesan daripada beberapa faktor seperti pelaksanaan program merger, penstrukturan operasi perbankan Islam, liberalisasi dan kemajuan teknologi. Oleh itu, kajian ini dibuat untuk mengukur perubahan darjah persaingan dalam industri dwi perbankan di Malaysia kesan daripada perubahan struktur yang berlaku dalam industri berkenaan. Kaedah Panzar-Rosse (PR) telah digunakan untuk mengukur darjah persaingan dalam industri dwi perbankan di Malaysia bagi tempoh 1997-2016. Kajian ini menggunakan data panel statik untuk menganggarkan model yang telah dibentuk. Nilai statistik H yang diperoleh menunjukkan bank-bank Islam dan konvensional beroperasi dalam struktur pasaran persaingan bermonopoli. Hasil kajian mendapati perubahan struktur telah meningkatkan tahap persaingan dalam industri perbankan di Malaysia. Keputusan kajian menunjukkan perubahan polisi yang dilakukan oleh Bank Negara Malaysia telah berjaya meningkatkan darjah persaingan dalam pasaran perbankan Islam dan konvensional. Pengetahuan tentang isu persaingan sangat penting supaya pembuat polisi boleh menggubal dasar baru bagi industri perbankan yang sesuai dengan struktur pasaran semasa. Kata kunci: Bank; persaingan; perbankan Islam; struktur pasaran; model Panzar-Rosse