Market Structure and Performance of Bangladesh Banking Industry: A Panel Data Analysis

The study examines the degree of concentration and performance of the Bangladesh banking industry for the period 1999–2011 by using the random effects (RE) estimator. It applies two competing hypotheses of traditional industrial-organisation theory — the structure-conduct-performance (SCP) paradigm and the efficient structure hypothesis (ESH) — to investigate the relationship between concentration and competition in the banking sector. For the full sample (1999–2011) the results do not support either hypothesis, but for a sub-sample (2002–2011) the results support the SCP hypothesis: profitability appears determined by concentration rather than market share. The findings imply that concentration reduces the cost of collusion and leads to higher-than-normal profits. Bank performance is positively associated with capitalisation, liquidity, and asset size; government-owned banks are found to be less profitable than other commercial banks.