Competition and Bank Performance in Bangladesh: An Empirical Study

Abstract

Starting from 1970s, the adoption of financial deregulation with an objective of intensifying banking sector competition has remained a common phenomenon in both developed and developing countries. Bangladesh has also executed substantial changes in the banking sector under the financial deregulation framework during 1980s and 1990s. In this regard, this paper attempts to assess bank performance, competition, and their relationship empirically by using banking sector data to fill the gap in the existing banking literature. Return on assets is used as a bank performance measure; whereas seven structural measures are employed for assessing competition followed by an application of ordinary least square regression for indentifying its impact. The findings report an improvement of bank performance during the period 1980-2011. On the other hand, the level of competition has been consistently increasing in the banking sector, as pointed out by all structural measures. The regression result shows an evidence of negative relationship between competition and bank performance, and thus, supports the structure conduct performance hypothesis.