Market power, credit risk, revenue diversification and bank stability in selected ASEAN countries

Abstract

This paper investigates the effects of market power on credit risk, revenue diversification and bank stability in selected Association of Southeast Asian Nations (ASEAN) member countries (Indonesia, Malaysia, the Philippines, Thailand and Vietnam) using a sample of 153 commercial banks during 1998-2010. The authors find that bank market power is positively associated with credit risk and revenue diversification. Nevertheless, these associations diminished during the global financial crisis (GFC), implying that banks with greater market power have been better able to manage their non-performing loans during the crisis period. Bank stability, however, is not associated with market power. Instead, it is found to be a negative function of state ownership, asset composition and banking freedom. Overall, even though ASEAN banks with greater market power have higher credit risk, they are more diversified, thus leaving their overall bank risk unaffected.