The effect of bank competition on bank stability in Thailand

Abstract

This research studies the impact of competition on bank stabilities, which are capital adequacy, non-performing loans ratio, interest income risk, and non-interest income risk. Lerner index is used to proxy degree of non-structural bank competition. We use data on 11 Thai commercial banks from the year 2010 to 2018 and employ Panel Least Square regression. Our results show that banks with higher market power tend to have lower risk lending behaviors. As a result, this allows them to have lower level of capital and higher level of risk in non-interest income activities. On the other hand, higher concentration ratio 5, measuring degree of structural competition, could lead to higher risk lending behavior. In addition, bank size has positive impact on stabilities by increasing capital level and decreasing credit risk, interest income risk and non-interest income risk. while high loan-to-asset ratio tend to lower credit risk and non-interest income risk.