Using the Rosse-Panzar H-statistic to investigate the the competitive condition in Vietnamese banking system

The Panzar-Rosse 1987 methodology-also called H statistic is applied to investigate the level of competition in Vietnamese banking sector over the period 2005-2015 by using the data coll

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PHAM HUYEN TRANG

USING THE ROSSE PANZAR H-STATISTIC TO INVESTIGATE THE COMPETITIVE CONDITION IN

VIETNAMESE BANKING SYSTEM

MASTER THESIS

Ho Chi Minh City-2018

PHAM HUYEN TRANG

USING THE ROSSE PANZAR H-STATISTIC TO INVESTIGATE THE COMPETITIVE CONDITION IN

VIETNAMESE BANKING SYSTEM

MAJOR: FINANCE-BANKING

CODE:8340201

MASTER THESIS

Instructor: Assoc.Prof.Phd.Vo Xuan Vinh

Ho Chi Minh City-2018

DECLARATION

EXECUTIVE SUMMARY

ABBREVIATIONS

LIST OF TABLES

LIST OF FIGURES

CHAPTER 1: INTRODUCTION 1

1.1 Necessity of the thesis 1

1.2 Prior researches 2

1.3 Objective of the thesis 3

1.4 Data 3

1.5 Methodology 3

1.6 The thesis contribution 4

1.7 Structure of the thesis 4

CHAPTER 2: BACKGROUND OF THE 6

VIETNAMESE BANKING SYSTEM 6

2.1 Reforms in the 1990s 6

2.2 Reforms in the 2000s 7

2.3 Reforms in the 2010s 14

2.4 Conclusion for chapter 2 16

CHAPTER 3: LITERATURE REVIEW 17

3.1 The general approach 17

3.1 The Panzar-Rosse Methodology 18

3.2 Empirical literature review 20

3.3 Conclusion for chapter 3 24

CHAPTER 4: RESEARCH METHOD 25

4.1 The model .25

4.2 Data 27

4.3 Conclusion for chapter 4 29

5.3 Conclusion for chapter 5 39

CHAPTER 6:CONCLUSION AND RECOMENDATIONS 40

6.1 Conclusion 40

6.2 Recomendations 41 LIST OF REFERENCES

APPENDIX

Rosse-Panzar H-statistic to investigate the the competitive condition in Vietnamese banking system” is the result of my own research I have completed this study under the guidance of Assoc.Prof.Phd.Vo Xuan Vinh, University of Economics Ho Chi Minh City

I certify that , to the best of my knowlegde, my thesis does not infringe upon anyone‟s copyright or violate any proprietary rights and that any ideas, techniques, quotations, or any other people included in my thesis

I futher declare that the thesis has not previously formed the basis for the award

of any degree, diploma, associateship, fellowship or other similar titles of

recognition

Author‟s signature

Pham Huyen Trang

Ho Chi Minh City, April,2018

decade The Panzar-Rosse (1987) methodology-also called H statistic is applied to investigate the level of competition in Vietnamese banking sector over the period 2005-2015 by using the data collected from the sample of 20 commercial private banks and 1 state-owned bank (Agribank) The results of this study reveal that Vietnamese banking market operates under the monopolistic condition (H takes the value at 0.4459, between 0 and 1) However, the results of competitive test for each year show that banks appear to be in monopoly condition from 2005 to 2009, and banks appear to be

in monopolistic condition from 2010 to 2015, except the year 2012 (the banking

market is not in equilibrilium condition, so that I can not apply H statistic for this year)

ANZ: Australia and New Zealand Banking Group Limited

BIDV: Bank for Development and Investment

HSBC: Hongkong and Shanghai Banking Corporation

M&A: Merger and Acquisition

NEIO: the New Empirical Industrial Organization

NPLs: the nonperforming loans

OCBC: Oversea Chinese Banking Corporation

SBV: State Bank of Viet Nam

SCB: Standard Charter Bank

SCP: the Structure conduct performance paradigm

SOCBs: State-owned commercial banks

USBTA: The United States/Vietnam bilateral agreement

WTO: World Trade Organization

Table 2: The numbers of the foreign bank, foreign bank branches and Joint-Venture banks in Vietnamese banking system from 2001 to 2009

Table 3: Interpretation of the H-statistic

Table 4: List of banks in the sample

Table 5: Regression Results of competitive conditions for Vietnamese banking system over the period 2005-2009

Table 6: Competitive conditions for Vietnamese banks, 2005-2009

Table 7: Competitive conditions for Vietnamese banks, 2010-2015

Table 8: Equilibrium tests for Vietnamese banks, 2005-2009

Table 9: Equilibrium tests for Vietnamese banks, 2010-2015

Figure 2: Market share of Vietnamese commercial banks in credit from 2000 to 2009 Figure 3: The non-performing loans ratio of the whole banking system over the period 2004-2009

Figure 4: The average credit growth rate and the credit outstanding balance of

Vietnamese banking system from 2000 to 2009

CHAPTER 1: INTRODUCTION 1.1 Necessity of the thesis

Competition is always an important topic for researchers in all sectors, especially in the banking and finance industry A healthy and stable banking and financial system will be the driving force for economic growth and development

The banking industry in Viet Nam has experienced many significant changes over the past two decades Previously, the market share was predominantly owned by state-owned banks However, nowadays restructuring, integration, internationalization trends and the technological progress, have contributed to changing the competition in Vietnamese banking sector

Particularly by accessing the WTO (World Trade Organization) in 2007, the restriction in financial and banking sector for foreign institutions gradually removed Integration and liberation financial sector brings many opportunities but also many challenges for Vietnamese banking system The market entry of foreign banks not only increases the level of competition but also increases the effectiveness and safety of banking industry Domestic banks have opportunities to access the capital, technology, and management experience from international credit institutions Although local banks have advantages of operating history and branch network, the weakness in management, technology, and service quality make the local banks cope with severe competition from foreign banks, the possibility of acquisitions by M&A activities

Besides, the structural changes made more and more banks established in Viet Nam As a consequence, the rapid development of the banking system in a short period has caused ineffectiveness in the banking sector Thus, Decision No 254 was approved

by the SBV to restructure the credit institution system, and M&A is one of the key solutions to improve the performance of Vietnamese's banking system

Therefore, in order to assess the competitive environment of the banking system

in Vietnam in the last decade particularly after Viet Nam became the 150Th member of WTO in January 2007 and provide more empirical evidence as reference information for managers and executives of banks as well as policymakers I chose the subject

“Using the Rosse-Panzar H-statistic to investigate the competitive condition in Vietnamese banking system" as my thesis topic

1.2 Prior researches

Measure the level of competitiveness in the banking sector has been studied by many researchers all around the world and the Panzar-Rosse methodology has been widely used in many studies This method has been used by many researchers to measure competitive conditions in developed countries and has recently been applied

in emerging and developing countries However, the number of papers conducted in emerging and developing countries is relatively small

One of the first studies used Panzar Rosse methodology to measure the competition was Shaffer‟s (1982) Lately, there are many studies used the Rosse Panzar method to assess banking competition have been published like Yuan (2006), Luis Gutiérrez de Rozas (2007), Maria PiaOlivero (2011), However, any research relevant to banking market using the Panzar-Rosse methodology in Viet Nam is rare

The thesis therefore aims to extend existing literature to banking sector of Viet Nam by first assessing degree of competition in the banking sector and secondly to investigate whether the sector is in long run equilibrium by using annual panel data of

21 sampled banks for the period 2005-2015 by employing Rosse-Panzar H-statistic methodology

1.3 Objective of the thesis

The primary purpose of this thesis is to provide the broad picture of competition and investigate competitiveness of banking industry in Viet Nam from 2005-2015.This article reviews the structure of Vietnamese banking industry using the data from 2005-

2015 and the Rosse-Panzar-H-Statistic (1987) to assess the competitiveness of Vietnamese banking system The thesis focuses primarily on the two following objective:

- Investigating the level of competitiveness in the Vietnamses banking sector over the whole period 2005-2015 by using Rosse Panzar methodology

- Assessing the changes in the level of competition year by year from 2005 to

1.6 The thesis contribution

Different from previous studies on the same subject, the thesis has some new contributions:

Based on a non-structural estimation technique (Panzar – Rosse methodology (1987)) to evaluate the competitiveness of the Vietnamese banking system for ten years from 2005 to 2015 Although the subject of competition has been studied and measured by many indicators such as Lener index, Boone index, for the banking system of Vietnam, the H-statistic of the Panzar-Rosse methodology has not been widely applied

Evaluating the competitive environment for the Vietnamese banking system for each year from 2005 to 2015 by using H-statistic The empirical results show that the competitive conditions of the Vietnamese banking system change over time and are more and more intensively

Investigating whether or not the banking sector is in long run equilibrium

Analyzing the impact of input costs( price of labor, price of funds and price of capital) on ratio of the ineterest income to total assets and ROA variables

Provide more empirical evidence, as reference material for competitive studies of the banking system in Vietnam

Based on the research results, the thesis gives a number of policy suggestions to commercial banks to cope with changes in the competitive environment

1.7 Structure of the thesis

The structure of this thesis is organized as follows Chapter 2 gives the overview

of Vietnamese banking system In chapter 3 reviews the literature and methodology on bank competitiveness Chapter 4 presents the data and the model Section 5 discusses the results And finally, chapter 6 provides the concluding remarks

Chapter 1: Introductiom

Chap ter 2: Background of the Vietnamese banking system Chapter 3: Literarture Review

Chapter 4: Research method

Chapter 5: The empirical results

Chapter 6: Conclusion and recomendations

CHAPTER 2: BACKGROUND OF THE VIETNAMESE BANKING SYSTEM 2.1 Reforms in the 1990s

The banking sector was changed radically from the comprehensive economic reform program, the transition from a centrally planned economy to a market-oriented economy in 1986 Prior 1990, the structure of banking system in Viet Nam is a one-tier model, the State bank of Viet Nam and its branches The vital of the State bank of Viet Nam (SBV) was as both a commercial bank and a central bank After that, in May

1990, the initiate of the Decree on the State Bank of Viet Nam has changed the structure of banking from the one-tire model to the two-tier model Four stated own commercial banks were established, based on four main commercial departments of SBV, included the Vietnam Industrial and commercial bank (Vietinbank), the Bank for Foreign Trade of Vietnam(Vietcombank ), the bank for Development and Investment (BIDV), and The Vietnam Bank for Agriculture and Rural Development (Agribank), which can operate independently At that time the SBV was the institution responsible for the management of the monetary policies, foreign exchange reserve and the supervision of the financial system, acted as a central bank The restructuring in 1990 had gradually removed the monopoly of the stated own, diversified the ownership and led to increasing in the number of private banks and foreign credit institutions From1991-1993, the number of commercial banks jumped from 4 to 41 and peaked 51

in 1997 In addition to the local commercial banks, the presence of branches of the foreign bank and joint venture banks has increased In 1998, there are 23 branches of foreign bank and 4 joint venture banks However, the market entry of foreign banks in the 1990s confronts many limitations about the commercial presence of foreign credit institutions, the type of banking services and their capital contribution to local banks

Table 1: The Vietnamese banking system from 1991 to 1999

2.2 Reforms in the 2000s

The United States/Vietnam Bilateral Agreement (USBTA) signed in December

2001 opened the Vietnamese banking sector and helped Viet Nam improve the business environment to access the World Trade Organization in 2007 Based on the terms signed in USBTA, Viet Nam had to eliminate the tariffs, quotas, reformed its trade and investment for foreign investors According to the agreement of USBTA, before 2010, Viet Nam committed to liberalize its banking sector The reforms allowed foreign banks to expand their business in Viet Nam as well as increase the more share

of capital in the Vietnamese banks

The year 2007 marked a new stage of Viet Nam banking system development; Viet Nam had joined and become the 150th member of the WTO (World Trade Organization) To comply with the commitments of the WTO, Viet Nam was obligated

to open its banking and financial sector That means the limitations and restrictions for foreign institution were gradually removed, as follows:

In the context of establishment of commercial presence of foreign credit institutions in Vietnam: according to the WTO commitments, since April 1, 2007, in

addition to the representative offices, branches of foreign banks, joint venture banks, banks with 100% foreign owned capital, joint venture finance companies and 100% foreign capital, joint venture financial leasing companies and 100% foreign capital, it is permitted to set up a wholly foreign-owned bank in Vietnam Nevertheless, in order to attract more large foreign credit institutions established in Viet Nam, the requirements for the establishment of a wholly foreign bank is that the foreign credit institution has total assets of more than US$10 billion at the end of the year prior to application, for the establishment of a branch of a foreign commercial bank is that the parent bank has total assets of more than US$20 billion at the end of the year prior to application, and for the establishment of a joint venture bank or a 100% foreign-owned bank is that the parent bank has total assets of more than US$10 billion at the end of the year prior to application

In the context of the operation and types of banking services for foreign credit institution: Foreign credit institutions operating in Vietnam can provide almost all types of banking services like domestic banks such as lending, deposit, leasing, foreign exchange, money market instruments, derivatives, money broking, asset management, payment services, advisory

In the context of capital contribution in the form of buying shares: Foreign banks may contribute capital to joint ventures with Vietnamese partners with a capital contribution not exceeding 50% of the charter capital of a joint venture bank The total amount of capital contributed to purchase shares of foreign organizations and individuals in each Vietnamese joint stock commercial bank shall not exceed 30% of the charter capital of such bank, unless otherwise provided by Viet Nam's laws or authorized by a Viet Nam's competent authority

After the decree 22/2006-ND-CP on February 28, 2006, the Government officially allowed five solely foreign banks (HSBC, ANZ, SCB, Shinhan Bank and Hong Leong Bank) established in 2008 HSBC became the first wholly foreign bank in

Viet Nam which officially operated in January 2009 The following wholly owned bank's establishments were Australia and New Zealand Banking Group Limited (ANZ) (2009), Standard Charter Bank (2009), Shinhan bank (2011), Hong Leong Bank (2009) and Public Bank Berhad (2015) Besides the establishment of solely foreign-owned banks in Vietnam, the entry of foreign banks into the Viet Nam market is also

foreign-by buying stakes in local commercial banks, like Standard Charter bank acquired 8.8% ACB's shares (2005), Techcombank sold 10% shares to HSBC (2005), OCBC Singapore bought a 10% in stake of VPbank (2006), etc The entry of foreign banks not only helps foreign banks expand their customers and market shares but also helps local banks have the opportunities to access the modern technology, develop more financial products and learn supervision experience from large foreign credit institutions However, integration in banking sector means that there will be more challenges and more competitions from foreign banks which allowed doing business as a domestic bank with the same right and privileges That requires the local banks have to strengthen their competitiveness by raising capital, developing new products, improving the managerial and new technology

Table 2: The numbers of the foreign bank, foreign bank branches and

Joint-Venture banks in Vietnamese banking system from 2001 to 2009

Figure 1: Market share of Vietnamese commercial banks in deposit from 2000 to

Figure 2: Market share of Vietnamese commercial banks in credit from 2000 to 2009

(Source: State Bank of Viet Nam)

The period from 2006-2007 was also the dynamic growth of credit in Viet Nam And the main factors of this were the rapid expansion of real estate and the stock

market The average credit growth at that time was 35% per year The decline in stock

market and the bursting of real estate bubble in 2008 had caused the banking crisis in

Viet Nam The value of the nonperforming loans ratio (NPL) increased significantly

Figure 3: The non-performing loans ratio of the whole banking system over the

period 2004-2009

(Source: http://finance.vietstock.vn)

Figure 4: The average credit growth rate and the credit outstanding balance of

Vietnamese banking system from 2000 to 2009

The nonperforming loans ratio (%)

The nonperforming loans ratio (%)

2.3 Reforms in the 2010s

To deal with the high nonperforming loan ratio as well as to strengthen the performance of banking system, the State Bank of Viet Nam approved the Project/Decision No 254 on the restructuring of credit institutions with the focus on banks during 2011-2015 The target of this project was to “restructure the credit institution system in order to develop a versatile, modern, safe, efficient, and sustainable system of credit institutions by 2020 with diverse forms of ownership, scales, types, and greater competitiveness based on advanced banking management technologies that conformable with international standards of banking, for the purpose

of better satisfying the demand for banking and financial services of the economy” (the Project/Decision No 254,2012) by encouraging small banks to voluntarily implement restructuring program, especially through mergers and acquisitions (M&A) activities

With increasing competitive pressure and globalization, M & A becomes a necessity for growth in the banking market M & A in the banking industry is a solution that increases the competitiveness and fiscal capability of banks through advantages of economies scale, information technology, human resources, and management capacity The year 2012 was a notable year with big M&A deals The merging of three banks: Sai Gon Joint Stock Commercial Bank (SCB), First Joint Stock Commercial Bank (Ficombank), and Vietnam Tin Nghia Commercial Joint Stock Bank (TinNghiaBank) with SCB was the consolidated bank was carried out following the Decision of SBV on 01/01/2012 and the charter capital after consolidating was 10,000 billion VND and total assets was 150,000 billion VND Hanoi Habubank Joint Stock Commercial Bank merged into Saigon - Hanoi Commercial Joint Stock Bank (SHB) on 28/08/2012

M&A deals were continuously conducted in 2013 like TienPhongBank sold its shares to DOJI Group with a maximum holding of 20%, Vietinbank sold 20% of its shareholder to the Tokyo Bank Mitsubishi UFJ (743 million US dollars); the merger of

WesternBank and PVFC into a joint stock commercial bank (PVcomBank); the acquisition of DaiABank and Hdbank; IFC and Maybank bought Abbank with the ownership rate was 10% and 20%,etc

2015 was the final year of project No.254 Decision No 589/QD-NHNN dated April 24, 2015, by the State Bank approved the merger deal between Mekong Housing Bank (MHB) and BIDV On 22 May 2015 MHB was officially merged with BIDV, and all branches of MHB were operated under the BIDV banner The following deal was the acquisition of Petrolimex Group Commercial Bank and Vietinbank The third bank merger in the same year was the deal of Southern Commercial Joint Stock (Southern bank) and Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank) based on the decision No 1844/QD-NHNN of SBV Besides, the State Bank of Vietnam has bought three banks, including the Global Petroleum Bank (GPBank), Oceanbank and Construction Bank The SBV also put DongA Bank under proper control and sent its staff to run its operations

One of the keys of the restructure credit institutions project is the encouragement foreign investment of the Government The first degree in 2014 was promulgated to encourage foreign banks buying stakes in the weak banks The decree allowed foreign investors hold maximum 30% charter capital of Vietnamese commercial banks and be treated equally as domestic investors

After five years, Project 254 has achieved impressive results and accomplished most of the objectives set out The financial system of Vietnam is healthier, promoting the competitiveness, financial capacity and operating capacity of the weak credit institutions have been improved significantly through M & A activities The number of credit institutions by the end of 2015 has decreased by 19 compared to 2011 At the same time, the level of safety and efficiency of credit institutions also increased substantially By the end of 2015, the ROA of the whole system is 0.52%, ROE 5.79%,

and capital adequacy ratio (CAR) is 13.14% Bad debt ratio will also gradually decrease from 4.08% in 2012 to 3.25% in 2014 and 2.55% in 2015

2.4 Conclusion for chapter 2

Vietnam's banking system has experienced many changes and reforms over the past ten years Together with the integration and globalization trend, the banking system of Vietnam has also had significant changes More and more private banks and foreign financial instutions are establish The market share of private banks and foreign instutions are increasing in deposit and credit

The period of 2007-2008 is a period of hot development of the banking system

in Vietnam More and more privated banks are established The rapid growth of credit and the collapse of the stock market and real estate have led to an increase in NPLs and

a weakening of the liquidity of the system

In order to deal with problems arising after the hot growth period and improve the efficiency of commercial banks in Vietnam, Project 254 was approved in 2010 The key of the project is M&A M & A in the banking industry is a solution that increases the competitiveness and fiscal capability of banks through advantages of economies scale, information technology, human resources, and management capacity After five years, Project 254 has achieved impressive results and accomplished most of the objectives set out The financial system of Vietnam is healthier, promoting the competitiveness, financial capacity and operating capacity of the weak credit institutions have been improved significantly through M & A activities

CHAPTER 3: LITERATURE REVIEW 3.1 The general approach

There are two approaches of measuring the market power: the structural approach and non-structural approach The structural approach (also called the traditional measures) includes the non-formal approaches (the Structure conduct performance paradigm (SCP), the efficiency hypothesis theory) and formal approaches

The Structure-Conduct-Performance paradigm (the SCP) which was firstly developed by Mason (1939) and Bain (1951) based on relations amongst market structure, firm conduct, and firm performance According to the SCP, the market structure is affected directly and shortly by the market environment The SCP suggests that the higher concentration leads to the less competitive and higher profits This means the banks which operate in a highly concentrated environment have more market power, hence the bank can get more profits from gaining interest spread between interest over deposits and interest over loans

On the other hand, the efficiency hypothesis theory, developed by H Demsetz (1973) and S Peltzman (1977), states that the most efficient firms increase in size and therefore, in market share at the cost of less efficient banks because of their ability to generate higher profits, leading to higher market concentration

According to the non-structural approaches (based on the New Empirical Industrial Organization-NEIO), the other factors such as entry barriers and the contestability of the market have more influence on the market power than the market structure and concentration NEIO models measure the market power by estimating the deviation between marginal cost and competitive pricing without explicitly using the market structure information Many models are developed and are widely used in assessing the competition, including Iwata (1974), Bresnahan (1982) and Lau (1982), and Panzar and Rosse (1987) The Iwata model allows the estimation of conjectural

variation values for individual banks supplying a homogeneous product in an oligopolistic market (Iwata, 1974) And Itawa model has only been applied once to measure banking competition by Shaffer, Di Salvo (1994) The Bresnahan's method and Panzar and Rosse's method are more popular and applied to banking by many researchers

Bersnahan (1982) uses historical data to estimate a market demand and cost equations indicating the bank‟s price setting equation and implicit mark up over marginal costs These estimates may be combined to yield a parameter λ whose value indicates the market‟s structure If λ=0, perfect competition exists; if λ=1 a perfect cartel with substantial market power; intermediate indicates an oligopoly solution (Mkrtchyan, 2005)

However, the Rosse-Panzar model is the most popular model and is used widely

by many researchers The Panzar-Rosse model is presented more specifically in next section One of the advantages of the Rosse-Panzar model is that it works well even in small samples with information about revenue and factor prices and it doesn't require the information about equilibrium output prices and quantities for the industry (Shaffer (2004)) Moreover, the data availability makes the PR model more preferable than Iwata (1974), Bresnahan (1982) and Lau (1982) model Because bank‟s total revenues are more observable than output prices and actual costs We can collect the data easily for PR model from the financial report or the other source

3.1 The Panzar-Rosse Methodology

As noted earlier, this study uses the non-structural technique-RP model to measure the degree of competition in Vietnamese banking system Rosse-Panzar (RP) model (also called H-statistic) was the first technique introduced on the new theory of industrial organization and applied to the case of banks, distinguish between oligopolistic, monopolistic and perfect competition Panzar and Rosse have obtained

measurements of market power, as well as competitive conditions in the industry, by studying the impact of input price on total revenue The Rosse and Panzar model based

on the premise that the banks use different pricing strategies to respond the change in input costs, based on the market structure that the firm operates

The H-statistic relies on the reduced form revenue equation and captures the elasticity of bank interest revenues to input prices and measures the percentage of change in the equilibrium revenue of a bank generated by a change of 1 percent in entry costs H-statistic increases with the degree of competitiveness

Under the perfect competitive condition, H statistic equals 1 In this case, the rise in input prices increased marginal costs and total revenue by the same amount

Under a monopoly, H-statistic is less than 0 or equal to 0 An increase in input prices results in the rise in the marginal cost, a decline in output and revenues

And H statistic takes a value between 0 and 1 in case of the monopolistic competition In the monopolistic competition, the revenues will increase less than the change in input prices

The H-statistic must be performed on banks which are in long-run equilibrium

In equilibrium, the risk-adjusted rate of return are equalized across banks and rate of return should not be correlated with input costs (Nathan and Neave (1989)) The long-run equilibrium test can be tested by regressing the return on asset (ROA) instead of bank revenue on input prices (TREV) in the competitive condition test In this case, H-statistic measures the sum of elasticities of return on the asset with respect to input price If H-statistic takes 0 value, this indicates long-run equilibrium If H-statistic values less than 0, this indicates disequilibrium However, if the sample is not in long-run equilibrium, it is true that H <0 no longer proves monopoly, but it remains true that H>0 disproves monopoly or conjectural variation short-run oligopoly (Shaffer, 1985)

Table 3: Interpretation of the H-statistic

Competitive environment test:

H<0: monopoly or conjectural variations short run oligopoly

Source: Panzar and Rosse (1982,1987)

3.2 Empirical literature review

The Panzar-Rosse methodology has been widely used in many studies This method has been used by many researchers to measure competitive conditions in developed countries and has recently been applied in emerging and developing countries However, the number of papers conducted in emerging and developing countries is relatively small

One of the first applied the Panzar-Rosse model was Shaffer‟s study Shaffer (1982) has investigated the competitive condition of banks in New York The H statistic takes a value from 0.32 to 0.36 for the competitive test and -0.3 and -0.59 for the equilibrium test The results of this study show that banks in New York operate under monopolistic competition Nathan and Neave (1989) has studied about the competitive environment in Canadian financial industry H-statistic indicates that revenues of banks, financial companies, and insurance companies in Canada are generated under monopolistic competitive market Molyneux et al (1996) also used the same analysis for a sample of banks in German, UK, France, Italy, and Spain over the 1986-1989 periods He found that banks characterized by monopolistic competition in

German, UK, France, Spain and by monopoly in Italy The Japanese banking market has also been analyzed by using the Panzar-Rosse methodology, and the results suggested that bank revenues behaved as if earned under monopoly or conjectural variations short-run oligopoly in 1986 but as if under monopolistic competition in 1988 ( Philip Molyneux,1996)

Using the same method, Rime (1999), and Hondroyiannis et al (1999) found monopolistic competition for Italian, Swiss, and Greek banking sectors Gelos and Roldos have studied three economies: Czech, Hungarian and Polish in the period 1994-

1999 and H statistics takes the value between 1 (perfect competition) and 0 (monopoly) Biker and Groenveld (2000) analyzed 15 European countries from 1989 to

1996 They found that the banking market in these countries did behave under monopolistic competition except Belgium and Greece The Bikker and Haaf (2002) study finds that competition in EU banks was monopolistic competition and the competition is weaker in local markets and stronger in international markets On the other hand, De Bandt and Davis (2000) findings show that in Germany, banks operate under monopolistic competition and in France; small banks are under monopoly condition Gelos and Roldos has studied three economies: Czech, Hungarian and Polish

in the period 1994-1999 H statistics takes the value between 1 (perfect competition) and 0 (monopoly).E.Mamatzakis (2005) evaluates the state of competition in the banking sector of the South Eastern European region over the period 1998–2002 and finds the banking industry in the region operates under monopolistic competition Luis Gutiérrez de Rozas (2007) used the data from commercial and savings banks over the period 1986-2005 to examine the level of competition in Spanish banking market.The empirical evidence reveals that H statistic has increased gradually, the competition among large banks becomes more competitive and gets close to perfect competition

A comparative study of the level of competition among Italian banks between

1988 and 1996 also uses the Panzar-Rosse H statistics (Coccorese, 2013) All banks

were divided into three groups based on their size The main conclusion of this study is that Italian banks operated under the monopolistic competition of 1988-1996

George; Lolos (1999) assessed the competitiveness in the Greek banking system

from 1993-1995 and the results showed that revenues of banks in Greece were earned under monopolistic competition market The deregulation, liberalization and the supply

of new financial products have changed the market power in the Greek banking industry

Other studies also used the Panzar and Rosse method include Smith and Tripe (2001) for New Zealand, Haffami (2002) for Tunisia, Belaisch (2003) for Brazil, Lee and Lee (2005) for Korea, Yildirim and Philippatos (2005) for 15 countries of Latin America found that the banking sectors in these countries operated under the monopolistic competition

Most of the early studies using the PR model to assess the competitiveness in developed countries and mature markets Recently, more and more researchers use this method for developing countries or the emerging markets where have undergone many changes due to liberalization, integration and the impact of the global financial crisis E.Mamatzal (2005) investigated the degree of competition in the banking sector of the South Eastern European region-an emerging region based on the H statistic The empirical results indicate banks operate under monopolistic competition over the period 1998-2002.Using the PR method, Yuan (2006) measures the degree of competition in the Chinese banking sector before China became a member of the World Trade Organization during 1996-2000 and concluded that banking system in China was near a state of perfect competition Murjan and Ruza (2002) investigate the degree of competition in Arab Middle Eastern banking industry, and the results show that banks operate under conditions of monopolistic competition SaeedAl Muharrami (2006) finds that banks in Kuwait, Saudi Arabia, and the UAE operate under perfect competition; banks in Bahrain and Qatar operate under conditions of monopolistic