Concentration and competition in nepalese banking

This paper examines the evolution of market concentration and tests the market competition of Nepalese banking industry for an unbalanced panel of 15-25 banks for the period of 2001- 2009. The market concentration is measured by Hirschman-Herfindahl indices and concentration ratios, and market competition is tested under Panzar-Rosse approach. The concentration measures indicate decreasing trend and low level of market concentration in Nepalese banking industry over the sample period. The test of market competition/contestability by using Panzar-Rosse approach rejects both the hypotheses for monopoly and perfect competition indicating monopolistic market behaviors among the Nepalese banks. In addition, the market for interest-based income is found to be more competitive than that of the market for fee-based income. The results further indicate that the size of bank has positive, and equity capitalization has negative impact on revenue generation. The results are robust across different specifications and across different estimation techniques.

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Market Competition ,

Banking ,

Panzar-Rosse Approach ,