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CPS2245 Azrie Tamjis
when compared to best-practice banks. Therefore, in order to produce the
same level of outputs of the best-practice banks, these inefficient banks
should improve their cost by approximately 20.0% respectively. Despite
various initiatives introduced to improve the degree of competition in the
market (e.g. liberalising controlled interest rates regime, allowing foreign
banks to increase branches) and reduce market concentration (e.g.
introducing new foreign banks), these measures have yet to show any
improvements due to their nascent or growing stages of implementation,
particularly during the post-consolidation period of domestic banks. A small
number of large domestic banks could lead to collusive strategies,
anticompetitive behaviour; and hence, can result in greater risks towards
public welfare. Furthermore, market power may lead to lower efficiency in
large banks, with managers enjoying the ‘quiet life’, and earning higher
interest rates on loans and deposits. Therefore, regulators ought to accelerate
their liberalisation initiatives to ensure adequate competitive pressures on
large domestic banks. Probably, greater participation of foreign ownership
through equity can be exploited as a catalyst for more efficiency.
References
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