[Blueboard] Dissertation Defense of Ms. Jovi C. Dacanay

Department of Economics [LS] economics.soss at ateneo.edu
Mon May 8 14:17:06 +08 2017


The Department of Economics

School of Social Sciences

Ateneo de Manila University



Cordially invites you



To a dissertation’s defense



“Does Bank Competition & Concentration Lead to Financial Stability?”





by Ms. Jovi C. Dacanay



on May 12, 2017 (Friday)

at 10:00 a.m. – 12:00 p.m.

Economics Department, Conference Room



Panel of examiners:

Alvin P. Ang, Ph.D.

Noel P. de Guzman, Ph.D.

Luis F. Dumlao, Ph.D.

Victor Abola, Ph.D. (UA & P)





Adviser

Fernando T. Aldaba, Ph.D.





Abstract:



There is a current debate in the banking literature regarding the effect of
competition on the financial stability of banks.  This study shall verify
the “competition-fragility” and the “competition-stability” views within
the context of imperfect competition and market concentration. With the
current financial environment of the Philippine banking industry, does bank
competition and concentration lead to financial stability?  An empirical
verification of the presence of imperfect competition and market
concentration shall be done using the traditional and non-traditional
methods of industrial organization.  To test the competition-fragility and
competition-stability views, the Z-index (indicator for financial stability
vis-à-vis over-all bank risk exposure and insolvency), non-performing loans
to total loans ratio (indicator for portfolio risk), and, the equity to
total assets ratio (indicator for bank capitalization) were used as
dependent variables and regressed, using the generalized method of moments
(GMM), with measures of market power: adjusted Lerner index,
Herfindahl-Hirschman Index or HHI (for deposits and loans) and other
bank-specific control variables, following the methodology used by Berger
et al 2009.   The GMM regression method allows a correction for
heteroscedasticity, weak serial correlation and endogeneity through the use
of robust estimators. The results show that with imperfect competition,
characterized by the presence of dominant and fringe banks, the dominant
banks are increasing their profit margins, through higher mark-ups, and,
decreasing their non-performing loans, lessening the probability of
insolvency thereby increasing the stability of the largest banks.  However,
this strategy also exposes them to higher default and market risks, thereby
increasing bank fragility. Dominant banks could have been in a position to
lead the banking industry to improve bank capitalization, thereby
strengthening the buffer effect, through the exercise of their market power.
Rather, improved profit margins instead of improved bank capitalization was
pursued.
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