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Exploring competitiveness in banking sector of a small island economy: a study of Fiji

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Abstract

The paper explores the competitiveness in the banking sector in Fiji using the Panzar and Rosse (J Ind Econ 35:443–456, 1987) method. We compute the concentration ratios and Herfindahl–Hirschman index based on total assets, loans, and deposits to examine the concentration level. To compute the Panzar-Rosse H-statistics, we use fixed effect regression method duly controlling for heterogeneity. The results show banks in Fiji exhibit monopolistic behavior and are biased towards monopoly/conjectural variation short-run oligopoly upon examining the significance level of the upper and lower bounds of the computed H-statistics. Moreover, the results also show that banks revenue are influenced positively by interest expenses, capital adequacy ratio, and the number of branches; and negatively by personnel expenses, other operating expenses, and firm size measured by total assets.

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Notes

  1. The BRED bank, a subsidiary of BRED Banque Populaire, France, commenced operation Fiji in the late 2012. Habib Bank Limited (HBL) seized to operate in 2005.

  2. HFC also acquired a provisional license to operate as a full-fledged bank. It was also noted from the disclosure statements that HFC started providing deposits facilities from 2008 while for other credit institutions were engaged in deposit facilities however, as a relatively small scale from 2000.

  3. The assumption of easy entry and exit is somewhat apparent in Fiji’s banking sector where, in retrospect, banks such as Habib Bank, Bank of Hawaii, Bank of New Zealand, among others entered and exited the banking market.

  4. The Bank of the South Pacific (BSP) took over Colonial National Bank (CNB) in 2010. Prior to this, National bank of Fiji operated as CNB since 2000

  5. Although HFC provided lending facilities since 1999, it assumed deposit functions from 2008.

  6. The data on personnel expenses and the number of bank employees over the sample period was not available for all banks. Therefore we used an average rate, 0.5156 times the total operating expenses to derive estimate personnel expenses for all banks. The figure 0.5156 was derived from three large banks personnel expenses reported in their annual reports over the period 2007–2011.

  7. The data for capital expenditure was not reported by the banks in the disclosure statements. Therefore, we used ratio of other operating expenditure (total operating expenditure less personnel expenses) to fixed assets as a proxy for PK (Sufian and Habibullah 2013)

  8. Note that Fiji experienced political crisis in 1987, 2002, and 2006.

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Acknowledgments

We would like to sincerely thank the editor in chief, Professor V. Capecchi and the reviewers for their comments and advice, and the Springer Correction Team. We would also like to thank Professor Peter Stauvermann of Changwon National University, Ms. Ashleen Prasad (former teaching assistant in the School of Accounting & Finance) and Radika Kumar (PhD candidate at the School of Economics) for the discussions during the initial phase of the paper.

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  1. School of Accounting and Finance, University of the South Pacific, Suva, Fiji

    Ronald R. Kumar & Arvind Patel

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  1. Ronald R. Kumar
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Correspondence to Ronald R. Kumar.

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Kumar, R.R., Patel, A. Exploring competitiveness in banking sector of a small island economy: a study of Fiji. Qual Quant 48, 3169–3183 (2014). https://doi.org/10.1007/s11135-013-9948-8

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