Bank Scale of Economies, Banking Industry Concentration, and Competition Level: The Indonesian Case
Abstract: Banking sector
efficiency in a country is directly influenced by regulations that set up by
the banking authorities in that country, especially what kind of banking
industry structure that regulator intend by those regulation. Indonesian Banking
Architecture which encourage mergers and acquisitions of smaller banks, has a
clear target that Indonesian banking industry should have a leaner industry
structure with fewer number of banks but with relatively large assets, higher
industry concentration higher and more tighter competition. This policy is
driven by the regulator’s belief that Indonesian banks has not achieved its
economies of scales and competition is relatively low so that the Indonesian banking
operating costs are among the highest among Asian countries. The opposite
actually happened in the USA where the regulator is precisely to prevent
mergers between major banks due to economies of scale bank in the United States
has been exceeded. The reserach results showed the group of large banks in
Indonesia is more efficient than medium and small banks and the efficiency is
more due to economies of scale than caused by the concentration of the industry
and the level of competition between banks.
Key words: Economies of
scale, industry concentration, banking competition
Penulis: BUDDI WIBOWO
