Does The Market Concentration Good For South East Asia Banking Industry?

Abstract

This research aims to determine the effect of market concentration and liquidity risk on profitability and credit risk in the twenty largest banks in ASEAN in 2018. The independent variable used in this research uses market concentration using the Herfindhal-Hirscman Index (HHI) proxy and liquidity risk using a loan to deposit ratio (LDR) proxy. The dependent variable used is profitability which uses the return on assets (ROA) proxy and non-performance loan (NPL) as the proxy of credit risk. The findings show that market concentration has a negative impact on bank profitability.This study also support the argument on concentration – fragility relationship on Singapore, Thailand, and Malaysia. Moreover, this study reveals that the liquidity risk has no impact on the bank profitability and also the credit risk. The implication of this study, it is noted the competition is good for ASEAN banking industry. The competition forces bank to operate efficiently and prudently.

Keywords: Market Concentration, Liquidity Risk, Profitability, Credit Risk