Research On The Comparison Of Competition And Efficiency In BRICS Banking Systems

This paper investigates competition in the banking systems of the BRICS as a wholein the context of BRICS economic development and the financial crisis. Specifically,the paper constructs2measures of competition, the Lerner Index and H-statistics, andStochastic Frontier Analysis for cost efficiency using bank-level data for a panel of82commercial banks from the5countries that are member states of the BRICS. Ingeneral, the results of Lerner Index prove that South Africa banking system is themost competitive, followed by Russia and India, and Brazil and China bankingsystems is the closet to monopoly. Furthermore, the countries that are close tomonopoly the competition, instead, is more competitive under the impact of financialcrisis. The results show a decrease in Lerner Index, so a significant increase incompetition in BRICS as a whole, and the influence of crisis isn’t obvious too. Fromthe results of H-statistics, relatively low competition occurs in Brazil and China,South Africa is higher, and India and Russia banking systems is the most competitive.Additionally, the dispersion of mean competition scores between member states of theBRICS increase obviously. These5country banking markets are volatile in varyingdegrees under the impact of financial crisis. The empirical results of convergenceshows, during the period2005-2012, the countries with the lowest level ofcompetition in2005hadn’t obvious experienced a higher increase of competition thancountries with the highest level of competition, nevertheless, the dispersion of meancompetition scores between member states of the BRICS was reduced obviously.Analysis of cost efficiency of BRICS banking sectors shows the constant term andtwo input prices—cost of funds and cost of physical capital—are positive andsignificant to cost inefficiency. And the three outputs are significant, too. Otherearning assets among them has negative impacts on cost inefficiency. Furthermore,the combination influence of the two at random of these three outputs to costinefficiency is significant. During the inspection of three risk indexes, only has credit risk index a positive significant impact on cost inefficiency, the rest two have noobvious effect on it. The results shows, meanwhile, the variation of inefficiency ismore important than any other stochastic variation in the cost frontier model. Besides,the cost efficiency of South Africa banking system is the highest, the differencebetween every single bank is gradually bigger. The cost efficiency of Brazil bankingsystem is also relatively high, and the polarization of cost efficiency between bankingsectors in Brazil is serious. The cost efficiency of India banking system is generallyincreasing as well, and the variation of cost efficiency gradually reduce towardsbalance. The difference of cost efficiency between banking sectors in China is theleast in BRICS countries. The cost efficiency of Russia banking system declined andincreased in the period, and kept a stable situation. Average cost efficiency in BRICSbanking system is raised in general. And the crisis gives impact to every country invarying degrees. The operational and liquidity risk happen to be positively associatedwith individual banks’ efficiency scores, but not obvious. Otherwise a larger volumeof credit risk through the banking sector can be associated with somewhat higherinefficiency levels. And the analysis displays the evidence for BRICS countriesrejects the efficient structure hypothesis and supports the ‘quiet life’ hypothesis.