COMPETITION AND THE BANK LENDING CHANNEL: EVIDENCE FROM BANK – LEVEL DATA IN THAILAND

Abstract

This paper attempts to assess the degree of competition in Thailand’s banking system, and examine the evolutionary effect of bank regulations. Furthermore, this paper investigates how a change in competition can affect the monetary policy on bank lending channel in Thailand. This study employs panel data from ten commercial banks over quarterly time periods from 2001–2015. The competition variable is measured using the Lerner index. Bank regulations can be divided into four groups: (i) restrictions on banking activities, (ii) limitations on foreign bank entry, (iii) capital stringency, and (iv) deposit insurance. Firstly, the results suggest that the competition level reduced in the 2000s but has been stable over the last six years. Secondly, regulatory variables affect competition in the Thai banking industry. The findings also indicate that lower activity restrictions and greater capital stringency reduce competition. In addition, lower limitations on foreign bank entry and a reduction in deposit guarantees enhance the competitive market. Finally, intensive competition has a positive impact on monetary policy via bank lending channels.

Keywords: Bank competition, Bank regulation, Bank lending channel