Competitive Structure and Bank Loan Rate in Pakistan’s Banking Industry

Amir Jahan Khan

Abstract


This paper estimates the relationship between loan price and
the number of banks in the corporate loan markets of Pakistan. An
original data set is constructed that includes loan price (interest
rate) and market structure (number of banks) in more than 300
geographical markets across Pakistan. Variation in market structure
(number of banks) along with variation in borrower and lender
characteristics is employed to identify the factors that affect interest
rates in loan markets. The findings based on regression result show that
a competitive structure influences market price as loan rates decline
when the number of banks increase in a market. Although the statistical
evidence goes in favour of the structure conduct hypothesis, the
findings are not robust across various functional forms. The detailed
analysis of the Credit Information Bureau data and institutional details
documented in this paper will be a useful reference for further research
on the Industrial Organisation of Banking in Pakistan. JEL
Classifications: L10, L11 Keywords: Price-concentration, Loan Price,
Industrial Organisation, Banking

Full Text:

PDF


DOI: https://doi.org/10.30541/v59i3pp.377-398

Refbacks

  • There are currently no refbacks.