Competition and Profitability of Commercial Banks in Thailand under The Financial Sector Master Plan Phase II-III
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Abstract
The objective of the present study is to investigate the relationship between competition and bank profitability of 14 commercial banks in Thailand that operated under the Financial Sector Master Plan Phase II-III (2010-2020). Structural and non-structural approaches assessed competition in Thailand’s banking industry. Econometric estimation was performed using the one-step GMM model. The findings reveal that the effects of competition on bank profitability varied depending on the approaches and indicators used. Under the structural approach, the concentration ratio (CR5) illustrated that increased competition positively affected bank profitability, as measured by ROA and ROE. The result was different when NIM was used to measure profitability, as reduced competition was found to enhance profitability. Nonetheless, the Herfindahl–Hirschman index exhibited no statistically significant relationship with profitability. Under the non-structural approach, when using the Lerner Index and Boone Index as competition measures, decreased competition was found to have a positive effect on bank profitability, as measured by ROA and ROE. The result differed when PRH was used to measure competition, as PRH indicated that increased competition enhanced bank profitability in terms of ROA and ROE. Lastly, profitability measured by NIM did not demonstrate any statistically significant relationship under this approach.
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