Market Structure and Bank Conduct in the MENA Region

Abstract

Abstract The Middle East North Africa (MENA) region is witnessing a wave of bank consolidations, with many mega-mergers taking place in the Gulf Cooperation Council (GCC) countries. These will result in creating large banks, reducing the number of market players and increasing market concentration; which is already high. A further increase in concentration may raise concerns about the resulting dominance of large banks and the consequences on their pricing behaviour. The interrelationships between market structure and pricing behaviour is summarised by the popular model of industrial economics called the structure–conduct–performance (SCP) model. Consequently, we test the prevalence of this model in a sample of 15 MENA banking sectors to detect the possible existence of an impact running particularly from the structure of banking markets to the pricing behaviour (power) of banks in order to predict a possible emergence of oligopolistic behaviour following bank consolidations. Using a two-stage least squares model, we found a positive and significant impact of market concentration on bank pricing, suggesting that an further increase in MENA banking markets’ concentration may boost banks pricing power and persuade them to increase their returns at the expense of their customers.