The Quarterly Review of Economics and Finance 71 (2019) 56–66

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The Quarterly Review of Economics and Finance

journal homepage: www.elsevier.com/locate/qref

Market power among UAE banks: The 2008 financial crisis and its
impact
Ali Mirzaei
School of Business Administration, American University of Sharjah, Sharjah 26666, United Arab Emirates

a r t i c l e i n f o a b s t r a c t

Article history: This paper investigates the impact of the global financial crisis with respect to the level of market power
Received 18 October 2017 across 31 banks in the UAE. By employing the Lerner index and exploring the evolution of market power
Received in revised form 9 January 2018 over time, we observe that the financial crisis had a negative effect on UAE banks, which lost a sub-
Accepted 2 June 2018
stantial degree of their market power. Furthermore, bank-level market power during the crisis period
Available online 5 June 2018
appears to have varied significantly with respect to certain bank characteristics. Specifically, the market
power of those banks that were less-capitalized and less efficient, decreased particularly significantly
JEL classification:
during the crisis period. Interestingly, banks with a high level of market share were also unable to pre-
D4
G01
serve their power. We compare these results systematically with those obtained for banks located in the
G21 MENA region. Overall, our results support the argument that the crisis severely reduced bank perfor-
L10 mance, not only in advanced economies, but also in emerging markets, although the adverse outcome is
heterogeneous across specific banks.
Keywords: © 2018 Board of Trustees of the University of Illinois. Published by Elsevier Inc. All rights reserved.
Bank market power
Financial crisis
The UAE
MENA

1. Introduction to economic growth by financing the real economy more efficiently

This paper assesses bank competition1 in the United Arab Emi-
rate (UAE) and analyses its resilience to the global financial crisis.
We investigate whether or not banks maintained their power dur-
ing the crisis period. Furthermore, we systematically compare the
potential impact of the crisis on the UAE banking system, with the
impact on the Middle East and North African (MENA) countries’
banking system. We consider whether the crisis and the subsequent
policy measures had the same impact on bank competition in the
UAE and MENA regions. Finally, by analysing the determinants of
bank competition, we examine whether bank-level market power
during the crisis period varies with respect to bank characteristics,
by highlighting the role of market share, efficiency, capitalization,
and access to the money market in shaping bank competition.
One of the major concerns for policy makers is how to main-
tain the sustainability of their financial markets. It is argued that
a sustainable banking sector needs to be more resilient, while
remaining competitive. A sustainable banking system contributes
E-mail address: amirzaei@aus.edu
1
In this paper we use the terms BANK COMPETITION and BANK MARKET POWER
interchangeably. The more competition the lower bank market power is.
(Igan, Kutan, & Mirzaei, 2016; Mirzaei & Moore, 2018). However,
the recent financial crisis has affected the ongoing sustainability of
the financial markets and subsequently the real sectors, not only in
advanced economies, but also in emerging ones (Moore & Mirzaei,
2016). Despite the fact that one channel through which the crisis
could have been transmitted to emerging economies is the dete-
rioration of competition among banks, there are few studies that
examine how the recent financial crisis affected bank competition
(e.g. Cubillas & Suárez, 2013; Efthyvoulou & Yildirim, 2014). The
costs of the global financial crisis, however, highlight the relevance
of reducing the negative effect of systemic banking crises and have
opened up a debate on the consequences of government interven-
tion and the consolidation process for the level of competition in
the bank market.
The resilience of the MENA (including the UAE) banking sector
to the global financial crisis remains unclear (Al-Hassan, Khamis,
& Oulidi, 2010). One theory is that there is a negligible impact on
the banking sector in this region. There are commonalities between
the financial systems in oil rich MENA countries, because they are
generally sustained by the banking sector and the MENA bank’s
ability to survive the crisis. The prevalence of domestic banks in
the region limited possible negative ripple effects from interna-
tional banks. Furthermore, the regional banks tend to focus on more

https://doi.org/10.1016/j.qref.2018.06.001
1062-9769/© 2018 Board of Trustees of the University of Illinois. Published by Elsevier Inc. All rights reserved.
 A. Mirzaei / The Quarterly Review of Economics and Finance 71 (2019) 56–66
traditional banking products, as opposed to (high-risk) derivatives
and structured produces, which enabled them to limit their losses.
The banking sector of most countries including the UAE were also
protected by the influx of capital and profitability in the years
prior to the 2008 recession. Diversification and the presence of
different types of banks with different business models, such as
Islamic banks, may also have had a positive stabilising influence.
And finally, high oil prices combined with a substantial share of
income derived from the petroleum industry, especially in oil-rich
MENA countries, probably mitigated the negative impact of the
crisis on banks.
The other and contradictory theory is that the banking sector
in this region was left somewhat exposed, due to real estate and
construction dealings, equity prices and the increasing prevalence
of external financing. When the price of oil increased between
2003 and 2008, there was a positive correlation between gov-
ernment expenditure, increased liquidity in the banking sector
and increased consumer and investor expenditure. This allowed
for rapid credit growth, which eventually caused national mar-
ket imbalances such as asset price bubbles. While credit growth
was initially underpinned by an established domestic deposit base,
it was eventually necessary to court international funding, which
tended to be more volatile. The 2008 global recession put an end
to the boom by reducing oil revenue, thus reversing short-term
capital inflows to the oil-rich countries. Furthermore, the open-
ness of the banking sector of some countries such as the UAE, may
have increased the speed of contagion. This could have rendered
the banking systems of the region vulnerable to the crisis through
contagion.
The effect of banking crises on bank competition is also unclear
(Cubillas & Suárez, 2013). On the one hand, bank market power
could be reduced during a financial crisis, if banks behave more
prudentially. To avoid new crises and/or to survive the existing
one, banks may be less motivated to invest in risky activities. This
may oblige banks to invest in safer, more familiar, but less prof-
itable, investment projects (Detragiache, Garella, & Guiso, 2000).
Investing in a low-risky project leads to low returns, which in turn
causes a reduction in bank margins, thus reducing bank market
power. On the other hand, the market power of the banking sec-
tor may increase, if banking crises reduce the number of banks
operating in the market. During the period of financial crisis,
shutdowns, mergers and acquisitions of failed banks are com-
mon in the banking sector. These processes decrease the number
of banks in the market (Laeven & Valencia, 2008). Furthermore,
efficient and solvent banks in the pre-crisis period are usually
those that survive the crisis. These efficient and survived banks
can increase market share during the crisis, and subsequently
reduce costs, charge higher prices, and increase margins after the
crisis (Berger, 1995). These justify an increase in bank market
power.
We examine these theories of the potential effects of finan-
cial crises on bank competition, using UAE banks and the 2008
financial crisis as our laboratory. Why the UAE banks? Due to the
abundance of hydrocarbon resources and its key position, the UAE
is a dynamically emerging country and its economy is open to
both global banks and investors. It is also a stable country, espe-
cially compared to its neighbours and other countries in the MENA
region. Its wealth and the associated need to handle huge flows
of petrodollars has shaped the banking sector of the country. The
banking sector in the UAE can and will play an important role
in diversifying of the country’s economy, which is a long-term
objective of the policy makers. Having a sound and competitive
banking sector is crucial for the country, in order to achieve such
a macroeconomic goal. However, the recent financial crisis may
have affected bank performance, because the country hosts major
international banks, conducts substantial international trade, and
57
receives a considerable amount of capital inflows. In fact, the UAE
has relatively more local and international banks, compared to
other MENA countries, which can be attributed to the openness
of its economy and business-friendly policy. An adverse impact of
the crisis on multinational banks, international trade, and capital
flows may have transmitted to bank performance and hence to
competition among the UAE banks. Thus, studying the impact of
the crisis on bank performance in the UAE is important, as it would
help the UAE banks to withstand future crises and preserve their
performance.
Our paper systematically compares the performance of the UAE
banking sector around the time of the crisis with other MENA coun-
tries’ banking sector, as these countries have more or less similar
financial and economic structure. The banking sector in the region
is relatively concentrated, with a few domestic players dominating
the market. Furthermore, oil-rich Arab countries have taken impor-
tant steps to achieve financial integration. The economic structure
of these countries is very similar and they exhibit convergence on
many macroeconomic indicators. Thus, they are usually subject to
common shocks. Because of the similar structure of financial mar-
kets and the common vulnerability of financial sector, comparing
the impact of the global crisis on bank competition could have pol-
icy implications for regulating the banking sector, so that they are
more resilient to future external shocks.
Our empirical analysis is undertaken for 31 UAE banks (and 424
banks in MENA region for comparison) over the period 2000–2014
and involves two steps. In the first step, by using the non-structural
Lerner index at the bank-level, we estimate the market power of
banks and explore the evolution of market power over time. This
allows us to examine to what extent bank market power in the UAE
was vulnerable to both the financial crisis and to the policy mea-
sures taken to increase the resilience of the banking system. We
find that while the level of market power among the UAE banks
increased noticeably during the pre-crisis period, the onset of the
global crisis put an end to this process and worsened bank perfor-
mance, by decreasing their market power. We observe the same
results for banks located in MENA region.
In the second step, we use an econometric framework to identify
the determinants of bank market power. Specifically, we consider
whether or not those banks that had more market share during
the crisis years, were better capitalized, more efficient, and had
better access to money markets, increased (or decreased) their mar-
ket power. In other words, we answer the following question: Has
the market power of banks with a different market share, capital
adequacy, efficiency and/or borrowing capacity evolved differently
after the crisis? We find that bank-level market power during
the crisis period appears to have varied significantly with respect
to certain bank characteristics. Specifically, the market power of
those banks that were less-capitalized and less efficient, decreased
significantly during the crisis period. Interestingly, banks with a
high market share were also unable to secure their power. We
again systematically compare these results with those obtained
for banks located in the MENA region. Overall, our results sup-
port the argument that the crisis degenerated bank performance
not only in advanced economies, but also in emerging markets,
although the adverse outcome is heterogeneous across certain
banks.
Our paper contributes to the existing literature in three ways.
First, it is related to those studies investigating the impact
of the global financial crisis on bank performance (See for
example, Choudhry & Jayasekera, 2014; Efthyvoulou & Yildirim,
2014; Montes, 2014; Sun, 2011). Cubillas and Suárez (2013)
examine the effect of worldwide banking crises on bank com-
petition over 1989–2007. They find that the degree of bank
competition decreases (market power increases) after a sys-
temic banking crisis. Second, our paper is related to those
58 A. Mirzaei / The Quarterly Review of Economics and Finance 71 (2019) 56–66
who examine the impact of the crisis on banking sector per-
formance in developing countries (Soedarmono, Machrouh, &
Tarazi, 2013; Sufian, 2010) and/or adverse effects on the real
sector in MENA countries (Mirzaei & Al-Khouri, 2016; Mirzaei
& Moore, 2016). Finally, our paper is complementary to those
few studies that measure the level of bank competition and/or
examine the impact of the crisis on bank performance in the
UAE and/or MENA countries (Anzoategui, Martinez Peria, & Rocha,
2010; Espinoza & Prasad, 2010). Overall, these papers point out
the vulnerability of both financial and real sectors of devel-
oping countries and/or the MENA region to the 2008 global
crisis.
The remainder of the paper is organised as follows. Section 2
specifies the model used to estimate bank competition and the
model to estimate its determinants. Section 3 is dedicated to the
data and descriptive analysis. In Section 4, we discuss the evolution
of bank market power over time and investigate the determinants
of bank competition. Section 5 concludes.
2. Methodology
To investigate the resilience of the UAE banking sector to the
global financial crisis, we proceed in two steps. In the first, we apply
the Lerner index to estimate the degree of bank market power over
time. In the second step, we use a proper econometric framework
to identify the determinants of bank market power and the impact
of the crisis.
2.1. Estimation of bank competition
Assessing the degree of competition in the financial markets
can be divided into two major categories. One entails the tra-
ditional measures, which use concentration indexes under the
structure–conduct–performance or the efficient structure hypoth-
esis (Berger, 1995). The other entails the non-structural indicators,
which include estimating the mark-up test of Bresnahan (Shaffer,
1989 and 1993, Shaffer & Disalvo, 1994), the Panzar and Rosse
test (Molyneux, Lloyd-Williams, & Thornton, 1994 and Nathan
& Neave, 1989) or instruments derived from Monti–Klein-type
banking competition models, such as the estimation of Lerner
indexes (Fernández de Guevara & Maudos, 2004 and Fernández
de Guevara, Maudos, & Pérez, 2007). Although these methods
have been applied individually to various markets, researchers
have recently attempted to examine empirically whether different
approaches yield similar results (e.g. Carbo, Humphrey, Maudos,
& Molyneux, 2009). The two widely-used measures of bank com-
petition are the Panzar and Rose H-statistics and the Lerner index.
However, the H-statistic does not provide a continuous, monotonic
index of the degree of competition, as explained in several studies
(e.g., Bikker, Shaffer, & Spierdijk, 2012 and Shaffer, 2004).
As the first step, we use the Lerner index to estimate bank
market power. This index measures the disparity between price
and marginal cost divided by price, which is defined as Lerner it =
Pit −MC it
P
in which P is the price of output (total assets), computed as
it
the ratio of total (interest and non-interest) revenue to total assets
for bank i at time t. MC is the marginal cost of total assets for bank
i at time t, computed from a standard translog cost function. The-
oretically, the Lerner index can vary between 0 (in case of perfect
competition) and 1. However, it is also possible to observe values
for the Lerner index below zero, suggesting that the bank is mak-
ing losses. Following Anginer, Demirguc-Kunt, and Zhu (2014) and
Mirzaei and Moore (2014), the specific form of the cost function
which is used to measure marginal cost can be written as:
1 2
 3
ln (TC ict ) = ˛0 + ˛1 × lnYict + ײ2 × (lnYict ) + ˇj × lnWj,ict
2
j=1
1  
3 3 3
+ ˇjk × lnWj,ict × lnWk,ict + j × lnYict × lnWj,ict
2
j=1 k=1 j=1
+ ˝ × Islamic Bank + c + ϑt + εict (1)
where i, c and t denote the bank, country and time, respectively2 .
TC is total costs; Y is a proxy for bank output (measured by total
assets); W1 is the input price of deposits, calculated as the ratio of
interest expenses to total deposits and short-term funding; W2 is
the input price of labour, calculated as personnel expenses to total
assets3 , and W3 is the input price cost of physical capital, calculated
as the ratio between expenditures on plant and equipment (other
non-interest expenses) and the book value of physical capital (fixed
assets). Since there are two types of commercial and Islamic banks,
we use bank specification dummies to capture the effect of each
type of bank. Furthermore, country fixed effects (c ) are introduced
to capture unobserved cross-country heterogeneity and finally, to
account for changes in technology over time, we include year dum-
mies (ϑt ). Following Efthyvoulou and Yildirim (2014), we estimate
Eq. (1) by maximum likelihood techniques for the whole panel of
banks in the 19 MENA (including the UAE) countries of our sample.
Robust standard errors clustered at the bank-level are used to cal-
culate the corresponding test statistics. The marginal costs is then
computed by
∂TC ict TC ict 3
MC ict = = [˛1 + ˛2 LnŶict + j LnŴj,ict ] (2)
∂Yict Yict
j=1
2.2. Determinants of bank competition
In the second step, we evaluate the determinants of bank
competition (market power), employing the following empirical
specifications:
MP ict = ϕ0 + ϕ1 × T reatment ict + ϕ2 × X ict + ϕ3 × Y ct + εict (3)
where i, c and tdenote bank i, country c and year t. Note that when
we examine banks in the UAE, the index c disappears. MP ict is bank
market power, obtained from the first step. T reatment ict is a vector
of four bank-specific treatments: Market Share is the market share
of bank i relative to country c banking market’s total assets; Capital
Adequacy is the ratio of bank equity to total assets; Inefficiency is the
ratio of bank overhead costs to total assets, and Funding Fragility is
the ratio of total money market and short-term funding to total
assets, as a proxy for money market borrowing capacity. X ict is
a vector of other bank-level control variables and Y ct is a vector
of country macroeconomic variables. We use the GMM estimation
technique to address both the endogeneity problem, as well as the
dynamic characteristics of market power.
The market power of the banking sector following a crisis may
increase for several reasons: (i) if the crisis reduces the number
of banks operating in the market due to shutdowns, mergers and
acquisitions of failed banks, bank market power will increase; (ii)
2
Note that because of the symmetry of the Hessian in the translog function, we
have ␤jk = ␤kj , where k =
/ j. In order to correspond to a well-behaved production
technology, the cost function needs to be linearly homogeneous, non-decreasing
and concave in factor prices, and non-decreasing in output. Thus, we impose the
symmetry restriction.
3
The number of employees is not available for many banks; hence, we follow
Efthyvoulou and Yildirim (2014) and proxy it by total assets.
 A. Mirzaei / The Quarterly Review of Economics and Finance 71 (2019) 56–66
efficient and solvent banks in the pre-crisis period are usually
those that survive the crisis and hence during the crisis, they may
increase their market power, (iii) if banks have greater borrow-
ing capacity, they may better sustain their performance during the
crisis. As a result, we focus on the above four treatment variables
(Market Share, Capital Adequacy, Inefficiency and Funding Fragility)
to examine whether the market power of banks with better posi-
tions of such characteristics increased their market power during
the crisis. By applying Eq. (3), we examine the impact of these vari-
ables during both the pre-crisis period (2000–2007) and the crisis
period (2008–2014).
Furthermore, we include several other bank-level variables
(X ict ) to control the potential effects of such factors on bank mar-
ket power. In particular, we control for (i) Size: bank size, as it
is believed that larger banks face more competitive pressure so
that they may take on more risk (De Nicolo, 2000); (ii) Lending:
loan to asset ratio, as a larger share of loans to total assets should
imply more interest revenue, although it is accompanied by higher
operational costs, because loans need to be made, serviced and
monitored; (iii) Liquidity: liquid assets to total assets ratio, as we
expect banks holding more non-earning assets to be more secure
but may have less market power; (iv) Profitability: a proxy for
bank level of profitability as measured by return on equity; and
(v) Diversification: a proxy for revenue diversification calculated by
subtracting the absolute value of net interest income minus other
operating income divided by total operating income from unity
(Boubakri, Mirzaei, & Samet, 2017; Laeven & Levine, 2007). Revenue
diversification takes values between zero and unity, with higher
values indicating greater diversification. Banks produce differenti-
ated products and these differences may influence the pricing of
loan products. For example, one could argue that well-developed
fee income sources will produce lower interest margins due to
cross-subsidies between bank activities. Finally, we include three
country-level control variables (Y ct ) in all regressions to account
for bank market structure, macroeconomic fluctuations and busi-
ness cycle effects (Mirzaei, Moore, & Liu, 2013): bank Concentration
ratio, GDP Growth and Inflation. Appendix Table A1 presents the
definitions, sources and averages of all variables used in this study.
3. Data and descriptive statistics
We employ annual bank-level balance sheet and income state-
ment data from the Bankscope database to study the resilience of
the UAE and MENA countries to the crisis. Our dataset covers a
total of 31 banks from the UAE, and 424 from MENA countries over
the period 2000–2014. We select only commercial (conventional
and Islamic) banks. In order to ensure that each bank is included
only once in the dataset, we use unconsolidated statements when
available, and consolidated statements when not. Merged banks
are considered as separate entities before the merger and as one
entity afterwards. Table 1 presents the number and size of banks in
the UAE and MENA region.
Table 2 shows a CAMEL approach for examining banking sound-
ness indicators for the UAE (Panel A) and MENA countries (Panel B).
As can be seen, UAE banking soundness generally decreased dur-
ing the financial crisis. For example, the average capital adequacy
ratio (equity to total assets) was about 18.59% during the stable
period, and only 16.05% during the crisis period. Banking growth
(measured in terms of assets or loans growth) also decreased sig-
nificantly during the crisis. In addition, earning indicators show a
negative impact of the crisis on return on average assets (ROAA)
and on return on average equity (ROAE), although there is a pos-
itive influence on the traditional indicator of bank profitability of
net interest margin (NIM). Overall, these results indicate that the
impact of financial crisis on bank soundness in the UAE was largely
59
negative and statistically significant. More or less the same pattern
can be observed for the MENA banking system.
Furthermore, as in most transition economies, the banking
structure of the UAE has been subject to significant changes over
the past decades. Bank restructuring and privatization has been
accompanied by an overhaul of the legal framework, the market
entry of foreign banks, and a strengthening of prudential regulation
and supervision. Such reforms lead the banking sector of the UAE
to be well ahead of many MENA countries. However, the crisis has
negatively affected banking sector growth in the UAE. Fig. 1a and
b shows that during the normal period 2000–2007, the UAE bank-
ing sector grew sharply, measured in terms of total assets and total
loans growth respectively, but a reverse trend is evident during the
crisis. The same is found for the MENA region.
One possible channel through which the financial crisis may
have affected the UAE banking sector is the change of its bank mar-
ket structure. We have computed a market share for each bank
during the normal period 2000–2007 and the crisis 2008–2014.
Fig. 2a displays the Lorenz Curve for market share. The horizontal
and vertical axes show the proportion of banks and market share
respectively. It is evident that the top 10% of UAE banks, accounting
for 3 banks, hold nearly 38% of the market share4 during the nor-
mal period, whereas during the crisis period, the same top 10% held
as much as 45% of the market. Fig. 2b also supports this by show-
ing the trend of bank 3-firm concentration ratio over the period
2000–2014. It is clearly evident that during the normal period up
to 2006 banking sector in the UAE were deconcentrated from about
49% to nearly 36%. However, since 2007 and as a result of the finan-
cial crisis banking industry became concentrated again reaching its
initial concentration ratio of 49% in 2000.
Overall, all these observations serve demonstrate the effect of
the crisis on the banking sector of the UAE, motivating us to exam-
ine the evolution of market power and further investigate whether
such impact is homogenous across banks.
4. Results
4.1. Evolution of the Lerner indices
Table 3 (column 1) displays the average Lerner indices for the
UAE (Panel A) and MENA (Panel B) over the period 2000–2014,
obtained from Eqs. (1) and (2). We point out four findings. First,
the average Lerner indices for the UAE (MENA) range from 25.6%
(11.6%) to 76.0% (45.4%) over the period, with an overall average of
54.9% (32.5%). Thus, banks in the UAE exhibit relatively less compet-
itive practices than the MENA banking sector. Second, the average
Lerner indices range increased substantially in the pre-crisis period
in both the UAE and MENA region, but decreased significantly with
the onset of the crisis. Hence, a negative effect of the financial crisis
on bank market power is noticeable. Third, a general movement
towards hampered banking market power during the crisis years
is confirmed, when we test the hypothesis that the Lerner index
for the UAE and MENA region is statistically different between the
pre-crisis (2000–2007) and crisis (2008–2014) periods (see bottom
of each panel). Specifically, the results of this test indicate that the
Lerner indices decreased significantly over the crisis years. We also
use a range of windows to check the robustness of our results: a
two-year window (2006–07 vs. 2008–2009), a three-year window
(2005–2007 vs. 2008–2010) and a four-year window (2004–2007
vs. 2008–2011). All suggest statistically a decrease in bank mar-
ket power during the crisis, although more severely for the UAE
than MENA banks. Fourth, columns (2)–(6) show that the impact of
4
Market share is measured as a percentage of a bank’s total assets to the sum of
total assets of all banks in the country.
60 A. Mirzaei / The Quarterly Review of Economics and Finance 71 (2019) 56–66

Table 1
Number of banks and size of banking sector in MENA countries.

Row Country No. of banks Percentage of total Size (2010–14, USD b)

banks in MENA

1 Algeria 20 4.72 5.97

2 Bahrain 37 8.73 4.85
3 Egypt 35 8.25 7.27
5 Iraq 20 4.72 0.47
4 I.R.Iran 16 3.77 26.80
6 Jordan 14 3.30 8.37
7 Kuwait 16 3.77 16.10
8 Lebanon 58 13.68 5.49
9 Libya 11 2.59 5.22
10 Morocco 16 3.77 14.80
11 Oman 10 2.36 6.38
12 Qatar 12 2.83 19.30
13 Saudi Arabia 13 3.07 36.50
14 Sudan 25 5.90 0.65
15 Syria 15 3.54 1.15
16 Tunisia 18 4.25 2.52
17 Turkey 47 11.08 25.40
18 UAE 31 7.31 18.80
19 Yemen 10 2.36 0.79
All 424 100 10.89

This table reports number of banks and size of banking sector (in terms of total assets) in 19 MENA countries.

Table 2
Financial soundness indicators for the banking sectors of UAE and MENA countries based on a CAMEL approach.

Panel A: UAE banking sector (31 banks) Panel B: MENA banking sector (424 banks)

2000-2014 Pre-crisis Crisis diff. 2000-2014 Pre-crisis Crisis diff.

2000-2007 2008-2014 2000-2007 2008-2014
(1) (2) (3) (4)= (3)-(2) (5) (6) (7) (8)= (7)-(6)

Capital adequacy
Equity to total assets (%) 17.26 18.59 16.05 −2.54** 17.65 15.83 19.11 3.28***
Tier 1 regulatory capital ratio (%) 18.35 19.52 17.92 −1.59 20.32 19.02 20.97 1.96
Capital growth 0.20 0.30 0.11 −0.19*** 0.17 0.24 0.12 −0.12***

Asset quality
Non-performing loans to gross loans (%) 6.35 5.69 6.87 1.18* 10.38 11.36 9.78 −1.58**
Loan loss provisions to total loans 0.01 0.01 0.01 0.01*** 0.03 0.02 0.04 0.02*
Loan loss reserves to gross loans (%) 5.37 6.10 4.68 −1.43*** 8.94 9.48 8.51 −0.97**
Growth of loans (%) 25.09 34.44 16.40 −18.05*** 23.46 25.80 21.62 −4.18**
Growth of assets (%) 22.73 33.46 12.68 −20.78*** 20.04 24.27 16.80 −7.46***

Management
Overheads to total assets 0.02 0.01 0.02 0.01*** 0.03 0.03 0.03 0.00
Cost to income ratio (%) 37.80 34.27 41.10 6.83** 57.32 55.01 59.17 4.16**
Revenue diversification 0.62 0.67 0.57 −0.10*** 0.53 0.54 0.51 −0.03***
Off-balance activities to total assets 0.46 0.54 0.39 −0.15*** 0.34 0.36 0.32 −0.04*

Earnings
Return on average assets (ROAA, %) 2.29 3.02 1.61 −1.41*** 1.47 1.89 1.13 −0.76***
Return on average equity (ROAE, %) 13.47 17.03 10.19 −6.84*** 11.04 12.84 9.58 −3.26***
Net interest margin (NIM, %) 3.34 3.09 3.57 0.48*** 3.83 4.12 3.59 −0.54***

Liquidity
Loan to total assets (%) 62.64 59.50 65.53 6.03*** 44.30 42.89 45.47 2.58***
Liquid assets to total assets 0.23 0.29 0.18 −0.11*** 0.31 0.33 0.29 −0.04***
Interbank position (%) 246.19 265.91 229.51 −36.40 231.66 264.98 206.93 −58.05***

Financial soundness indicators of banking sectors in pre-crisis (2000–2007) and crisis (2008–2014) periods.
This table reports financial soundness indicators based on the CAMEL approach for the banking sector of the UAE (Panel A) and 19 MENA countries (Panel B). ***, **, and *
denote statistical significance at the 1%, 5%, and 10% levels.

the crisis on other bank performance indicators is also significant.
The concentration ratio and the Herfindahl-Hirschman (HH) index
increased (decreased) significantly for the UAE (MENA), suggesting
a more concentrated banking sector during the crisis for the UAE.
In addition, the return on average assets (ROAA) and on average
equity (ROAE) decreased substantially, indicating a less profitable
banking sector in both the UAE and MENA during the crisis period.
However, we find an increase in the traditional indicator of net
interest margin (NIM) in the UAE, but a decrease for the MENA
region.
4.2. Determinants of bank market power and the impact of the
crisis
In this section, we investigate the determinants of bank mar-
ket power. Note that it is highly likely that a bank’s market power
would affect its performance or economic activities, thus raising a
potential reverse causality issue. In addition, the dependent vari-
able is highly persistent over time, and there are also probably
correlations among some of the regressors specified in the model.
Thus, following previous researchers (e.g. Al-Khazali & Mirzaei,
2017; Cubillas & Suárez, 2013; Efthyvoulou & Yildirim, 2014;), we
 A. Mirzaei / The Quarterly Review of Economics and Finance 71 (2019) 56–66 61

Fig. 1. Banking market growth in the UAE and MENA countries over 2000–2014.

Fig. 2. Banking market structure in the UAE in pre-crisis (2000–2007) versus crisis period (2008–2014).

account for all of this by using the Generalized Method of Moments
(GMM) estimator, as proposed by Arellano and Bond (1991). Lags
of both dependent and independent variables are used as instru-
ments. We employ the Sargan test of over-identifying restrictions
to check whether the instruments are good. If we fail to reject
the null hypothesis, we conclude that the instruments are indeed
good. In addition, we assume that the error terms of regression
are not second-order serially autocorrelated. Failing to reject the
null hypothesis of no secondary-order autocorrelation supports
this assumption.
We continue our analysis by estimating Eq. (3) first for the nor-
mal period 2000–2007. The main aim of this practice is to examine
the overall determinants of bank market power in the UAE during
economically normal periods and also to observe the impact of our
treatment variables (i.e. Market Share, Capital Adequacy, Inefficiency,
and Funding Fragility) on bank competition. Table 4 presents the
results. Panel A shows the results for the UAE, and Panel B for the
MENA region. The AR(2) suggests that in neither regressions are
there secondary-order autocorrelations. The Sargan test cannot be
rejected at the conventional level in all regressions, but only for
the UAE. We first focus on Columns (1) and (4). Among our four
treatment variables, only market share has a positive and statis-
tically significant impact on bank market power in the UAE. This
is plausible, because one would expect banks with a higher mar-
ket share to offer new products and services and to be in a better
position to collude, and hence have the capability to exploit their
monopolistic power and raise their market power. The effects of
bank capital adequacy, efficiency and borrowing capacity on bank
market power is statistically insignificant. This is in contrast to our
expectation that these variables are positively associated with bank
competition. Yet, there is no a significant effect of these treatment
variables, even market share, on the market power of the MENA
banking systems.
Turning to control variables, we find that smaller banks and
those with a higher level of profitability tend to have greater market
power in the UAE. One reason why bank size is negatively associ-
ated with bank market power could be that small banks are more
efficient and less bureaucratic than larger ones and hence may be
62 A. Mirzaei / The Quarterly Review of Economics and Finance 71 (2019) 56–66

Table 3
Evolution of bank market power and other performance ratios in the UAE and MENA region over the period.2000–2014.

Market power Other performance indicators

Lerner Concentration HH index ROAA ROAE NIM

(1) (2) (3) (4) (5) (6)

Panel A: UAE banking sector (31 banks)

2000 0.256 0.48 0.12 2.24 13.78 3.34
2001 0.318 0.46 0.11 2.18 13.86 3.13
2002 0.636 0.44 0.11 2.24 13.98 3.06
2003 0.793 0.43 0.10 2.19 13.41 2.88
2004 0.898 0.41 0.10 2.88 15.88 3.10
2005 0.893 0.41 0.10 4.46 23.71 3.38
2006 0.509 0.38 0.09 4.22 19.20 3.06
2007 0.567 0.43 0.10 3.17 19.88 2.85
2008 0.337 0.42 0.09 1.67 12.63 2.99
2009 0.290 0.48 0.11 1.02 6.55 3.61
2010 0.392 0.48 0.11 1.38 8.21 3.58
2011 0.434 0.50 0.11 1.45 8.84 3.66
2012 0.543 0.49 0.11 1.86 10.72 3.68
2013 0.616 0.49 0.11 1.82 11.16 3.59
2014 0.760 0.49 0.11 2.01 12.98 3.87
Pre-crisis (2000-2007) : (1) 0.609 0.430 0.103 2.948 16.714 3.097
Crisis (2008-2014) : (2) 0.482 0.477 0.107 1.601 10.155 3.570
Diff. = (2)-(1) −0.127*** 0.048*** 0.004*** −1.347*** −6.559*** 0.473***
Window: 2 years −0.224*** 0.048*** 0.007*** −2.352*** −9.950*** 0.348
Window: 3 years −0.316*** 0.057*** 0.0085*** −2.593*** −11.802*** 0.300
Window: 4 years −0.353*** 0.064*** 0.009*** −2.303*** −10.612*** 0.367**

Panel B: MENA banking sector (424 banks)

2000 0.116 0.70 0.25 1.15 14.01 4.67
2001 0.137 0.71 0.27 0.62 7.64 4.37
2002 0.261 0.71 0.29 1.07 12.83 3.78
2003 0.350 0.70 0.27 1.55 12.23 3.81
2004 0.440 0.70 0.28 2.02 13.54 3.97
2005 0.488 0.68 0.25 2.82 13.53 4.06
2006 0.360 0.63 0.20 2.52 14.67 3.99
2007 0.337 0.58 0.17 2.62 13.16 4.31
2008 0.290 0.57 0.17 1.53 11.62 4.25
2009 0.283 0.57 0.17 0.68 8.24 3.68
2010 0.305 0.56 0.16 0.35 8.85 3.41
2011 0.321 0.53 0.14 1.26 8.71 3.36
2012 0.351 0.53 0.14 1.24 9.25 3.52
2013 0.377 0.55 0.15 1.56 10.36 3.44
2014 0.454 0.61 0.20 1.39 10.45 3.46
Pre-crisis (2000-2007) : (1) 0.311 0.675 0.247 1.796 12.700 4.120
Crisis (2008-2014) : (2) 0.340 0.560 0.160 1.146 9.640 3.589
Diff. = (2)-(1) 0.029 −0.115*** −0.087*** −0.651*** −3.060*** −0.532***
Window: 2 years −0.062** −0.031*** −0.015*** −1.461*** −3.989*** −0.186
Window: 3 years −0.103*** −0.061*** −0.042*** −1.799*** −4.217*** −0.340
Window: 4 years −0.107*** −0.087*** −0.065*** −1.540*** −4.369*** −0.408**

This table presents the evolution of bank market power measured in terms of the Lerner index and other bank performance indicators for the UAE banking sector (Panel A)
and for the MENA banking sector (Panel B). At the bottom of each panel we apply the model Performanceic = Performanceic,crisis − Performanceic,pre−crisis where i and
c denote bank i in country c. We apply three windows: 2, 3 and 4 years. ***, **, and * denote statistical significance at the 1%, 5%, and 10% levels.

in a better position to improve price-cost margins. However, for the
MENA region, it is the large banks that have more market power.
Concerning other bank-level variables, we find no impact. Finally,
regarding macroeconomic variables, the impact of bank concen-
tration on market power in the UAE is positive and statistically
significant, suggesting that as banks become more concentrated,
they raise their market power. The coefficient on GDP growth has
a positive sign and is statistically significant at the conventional
level, suggesting that during normal periods, banks tend to have
more market power as the economy grows fast (Efthyvoulou &
Yildirim, 2014 and Fungáčová, Pessarossi, & Weill, 2013). Inflation
also appears to be positively related to bank market power. These
results are for the UAE banks, which suggest that bank market
power is mostly determined by macroeconomic variables, rather
than bank-level. However, for MENA banks, we could not deter-
mine the impact of macro variables, although banks in countries
with higher growth rate do evidently have less market power.
To check the robustness of our results, we control for the level
of institutional quality of countries. One might expect that in coun-
tries where the quality of institutions is high, banks may compete
intensely and hence, market power decreases. We employ two
institutional variables, namely Property Rights and Financial Free-
dom. The former measures the degree to which a country’s laws
protect private property rights and the degree to which its gov-
ernment enforces those laws. The latter is a measure of banking
efficiency, as well as one of independence from government con-
trol and interference in the financial sector. We obtain these data
from the Heritage Foundation. The results are reported in Columns
(2)–(3) for the UAE and (5)–(6) for MENA. We find that our previ-
ous findings still hold. Regarding these two variables themselves,
we find no impact on bank market power in the UAE, but a negative
impact of financial freedom and a positive effect of property rights
are found for MENA region.
Note that the main objective of the proceeding results was to test
the role of our treatment variables in influencing the bank market,
suggesting that in the UAE, banks with higher market share, smaller
size and with greater profitability have more power during the sta-
ble period 2000–2007. However, we want to establish something
 A. Mirzaei / The Quarterly Review of Economics and Finance 71 (2019) 56–66 63

Table 4
Determinants of bank market power over the normal (pre-crisis) period 2000–2007.

Panel A: UAE banking sector (31 banks) Panel B: MENA banking sector (424 banks)

(1) (2) (3) (4) (5) (6)

Lag Dep. 0.115 0.182 0.023 0.579*** 0.592*** 0.608***

[0.79] [1.04] [0.16] [7.98] [7.59] [7.77]
Treatmenti,c,t
Market Share 5.467*** 6.043*** 5.603*** −0.162 −0.138 −0.158
[3.06] [2.61] [2.74] [-0.55] [-0.41] [-0.43]
Capital Adequacy 0.001 0.000 0.002 0.003 0.003 0.003
[0.17] [0.06] [0.31] [1.44] [1.37] [1.51]
Inefficiency 6.866 2.982 11.522 1.351 1.455 1.750
[0.64] [0.19] [0.70] [0.67] [0.78] [0.89]
Funding Fragility −0.074 −0.093 −0.047 −0.079 −0.117 −0.107
[-0.36] [-0.42] [-0.20] [-0.48] [-0.60] [-0.54]

Bank-level variables: Xi,c,t

Size −0.201*** −0.238*** −0.201*** 0.054** 0.041* 0.044*
[-4.67] [-3.78] [-4.53] [2.45] [1.75] [1.86]
Lending −0.003 −0.002 −0.006 0.002 0.000 0.000
[-1.17] [-0.32] [-0.75] [1.00] [0.25] [0.24]
Liquidity −0.302 −0.222 −0.649 0.169* 0.112 0.114
[-1.56] [-0.27] [-0.69] [1.66] [1.08] [1.10]
Profitability 0.099*** 0.102*** 0.097*** 0.080*** 0.080*** 0.081***
[3.24] [3.11] [2.91] [5.99] [5.87] [6.00]
Diversification 0.127 0.148 0.113 0.084 0.105* 0.090
[1.13] [1.12] [0.86] [1.40] [1.73] [1.40]

Country-level variables: Yc,t

Concentration 8.047*** 7.861*** 8.253*** 0.056 0.023 0.050
[11.61] [12.11] [8.91] [0.51] [0.16] [0.35]
GDP Growth 0.048*** 0.046*** 0.051*** −0.004** −0.005** −0.005**
[6.19] [6.07] [6.82] [-2.15] [-2.55] [-2.35]
Inflation 0.036*** 0.028** 0.038*** 0.002 0.002 0.001
[6.02] [2.03] [6.76] [1.29] [1.04] [0.62]
Institutions: Proprty Rights −0.003 0.002**
[-0.75] [2.12]
Financial Freedom −0.001 −0.003***
[-0.44] [-3.03]

Sargan test (p-value) 0.24 0.23 0.23 0.00 0.00 0.00

AR(2)-(p-value) 0.62 0.70 0.54 0.25 0.26 0.28
Observations 123 123 123 864 824 824

This table reports the results estimating MP ict = ϕ0 + ϕ1 × T reatment ict + ϕ2 × X ict + ϕ3 × Y ct + εict where i, c and tdenote bank i, country c and year t. MP ict is bank market
power (Lerner index) in bank i in country c in year t. T reatment ict is a vector of bank-specific treatments in bank i in country c in year t: Market Share is the market share
of each bank relative to country c bank market’s total assets; Capital Adequacy is the ratio of a bank equity to total assets; Inefficiency is the ratio of a bank’s overheads to
total assets, and Funding Fragility is the ratio of total money market and short-term funding to total assets. X ict is a vector of other bank-level control variables. Y ct is a vector
of country macroeconomics control variables. See Table A1 in Appendix for detail definition of variables. All regressions include a constant term (unreported). Sargan test:
the test for over-identifying restrictions. AR(2): the autocorrelation tests in residuals of order 2. The statistical inferences are based on standard errors (associated t-values
reported in parentheses). ***, **, and * denote statistical significance at the 1%, 5%, and 10% levels, respectively. Sample period: 2000–2007.

further: do our treatment variables effectively shape the role of the
crisis on bank market power? In other words, did the market power
of banks that had more market share, were better capitalized, more
efficient, and had better access to the money market, increase dur-
ing the crisis? To answer this question, we re-run Eq. (3) for the
crisis period 2008–2014, and the regression results are presented
in Table 5.
We find that in the UAE, if a bank was well capitalized and/or
was more efficient in crisis years, its market power increased signif-
icantly during the crisis period. Well-capitalized banks face lower
costs of funding and a lower risk of bankruptcy, and also have a
greater ability to develop business and deal with risks. Interest-
ingly, we find that the market share was negatively associated with
the bank market power. This suggests that banks with a high market
share could not preserve their power during the crisis. Banks with
a higher market share during the crisis period were more exposed
to the financial crisis through their interconnectedness with inter-
national banks or international trade. The collapse in interbank
markets and international trade since the crisis affected banks with
a higher market share than those with less. Furthermore, bank
funding fragility did not contribute to the level of market power
of the UAE banks, indicating that better access to the money mar-
ket was not sufficient for a bank to sustain its market power. Yet,
we do not find any significance of these treatment variables on the
market power of MENA banks during the crisis period.
Regarding bank-level and macroeconomic variables, bank size
and profitability, again, affect bank market power. But, bank size
now affects bank market power positively. In addition, lending
and liquidity ratios are negatively associated with bank market
power, indicating that banks with more traditional activities and
with a higher level of liquid assets were losing power. Diversifica-
tion retains its position of no impact. And, GDP growth and inflation
no longer have a robust effect on UAE banks. Finally, we now find
that higher institutional quality in the UAE is associated with lower
bank market power5 .
5
Note that since the data on financial freedom is constant for the UAE during
the crisis period, we had to use an alternative proxy monetary freedom, defined as
a measure of price stability with an assessment of price controls. In addition, there
are high correlations among the bank concentration ratio and institutional quality
variables during the crisis period, and hence, we drop the concentration ratio from
the regressions when we include a proxy for institutional quality.
64 A. Mirzaei / The Quarterly Review of Economics and Finance 71 (2019) 56–66

Table 5
Determinants of bank market power over the crisis period 2008–2014.

Panel A: UAE banking sector (31 banks) Panel B: MENA banking sector (424 banks)

(1) (2) (3) (4) (5) (6)

Lag Dep. −0.179 −0.162** −0.172** 0.380*** 0.279** 0.303***

[-1.61] [-2.08] [-1.97] [4.58] [2.29] [2.80]

Treatmenti,c,t
Market Share −11.676*** −6.861*** −7.356*** −0.176 0.483 0.467
[-3.34] [-2.72] [-2.80] [-0.23] [0.80] [0.72]
Capital Adequacy 0.013*** 0.007** 0.007*** 0.002 0.009*** 0.008**
[4.35] [2.55] [2.87] [0.53] [2.87] [2.54]
Inefficiency −27.424** −24.094*** −25.971*** −2.323 −0.788 −1.067
[-2.54] [-2.59] [-2.72] [-1.32] [-0.43] [-0.64]
Funding Fragility 0.172 0.225 0.227 0.127 0.267* 0.261*
[0.72] [1.37] [1.29] [0.95] [1.91] [1.96]

Bank-level variables: Xi,c,t

Size 0.445*** 0.231** 0.245** 0.061 0.116** 0.117***
[3.95] [2.08] [2.21] [1.53] [2.40] [2.58]
Lending −0.024*** −0.020*** −0.021*** 0.001 0.001 0.001
[-6.56] [-5.28] [-5.53] [0.33] [0.73] [0.70]
Liquidity −1.792*** −1.563*** −1.734*** 0.075 −0.081 −0.027
[-4.94] [-3.67] [-3.96] [0.77] [-0.93] [-0.31]
Profitability 0.265*** 0.264*** 0.261*** 0.107*** 0.111*** 0.114***
[36.76] [29.37] [28.91] [6.58] [4.87] [4.90]
Diversification 0.045 0.086 0.080 0.113** 0.107* 0.091
[0.49] [1.23] [1.08] [2.09] [1.66] [1.41]

Country-level variables: Yc,t

Concentration 3.245** 0.165
[2.23] [1.02]
GDP Growth 0.002 0.056*** 0.027*** 0.001 0.000 0.001*
[0.28] [4.74] [3.52] [1.51] [1.09] [1.88]
Inflation -0.002 −0.022*** −0.002 −0.002 −0.001 −0.001
[-0.92] [-4.31] [-1.18] [-1.50] [-1.01] [-0.77]
Institutions: Proprty Rights −0.052*** 0.003**
[-4.17] [2.17]
Monetary Freedom −0.250*** 0.001
[-4.16] [0.43]

Sargan test (p-value) 0.18 0.18 0.21 0.08 0.02 0.01

AR(2)-(p-value) 0.16 0.20 0.22 0.60 0.53 0.50
Observations 88 88 88 822 754 778

This table reports the results estimating MP ict = ϕ0 + ϕ1 × T reatment ict + ϕ2 × X ict + ϕ3 × Y ct + εict where i, c and tdenote bank i, country c and year t. MP ict is bank market
power (Lerner index) in bank i in country c in year t. T reatment ict is a vector of bank-specific treatments in bank i in country c in year t: Market Share is the market share
of each bank relative to country c bank market’s total assets; Capital Adequacy is the ratio of a bank equity to total assets; Inefficiency is the ratio of a bank’s overheads to
total assets, and Funding Fragility is the ratio of total money market and short-term funding to total assets. X ict is a vector of other bank-level control variables. Y ct is a vector
of country macroeconomics control variables. See Table A1 in Appendix for detail definition of variables. All regressions include a constant term (unreported). Sargan test:
the test for over-identifying restrictions. AR(2): the autocorrelation tests in residuals of order 2. The statistical inferences are based on standard errors (associated t-values
reported in parentheses). ***, **, and * denote statistical significance at the 1%, 5%, and 10% levels, respectively. Sample period: 2008–2014.

5. Conclusion is not a sustainable pattern and not associated with an efficient

This paper assesses the level of bank market power and its deter-
minants in the UAE and further investigates the impact of the global
financial crisis. It also systematically compares the impact of the
crisis on the UAE banks with those located in MENA region. By
applying the non-structural bank-level Lerner index, we find that
competitive conditions in the UAE banking sector vary significantly
over time, and despite a substantial increase in market power in the
pre-crisis period, banks lost power with the onset of the financial
crisis. Similar results are found for the MENA region, suggesting
that banks located in these countries had the same level of vul-
nerability to the crisis. Initial impression might be that the crisis
has raised the level of bank competition, by decreasing the mar-
ket power of banks, which seems to be encouraging. However, this
regulatory policy. Rather, this is a consequence of turbulence in
the financial markets. In fact, we find that although the crisis had
lowered bank market power, banks recovered their power again in
recent years (20012-214), reaching pre-crisis levels. Furthermore,
we find that in the event of a cross-border crisis, banks with bet-
ter capitalization and high level of efficiency are more resilient and
could even improve their market power by acquiring risky banks
and/or charging high prices. Yet, this is the case only for the UAE
banks, suggesting that the degree of vulnerability of banks to the
crisis was not homogenous across banks and/or countries. Overall,
our results indicate a need to revisit competition policy in the UAE.\
Appendix A
 A. Mirzaei / The Quarterly Review of Economics and Finance 71 (2019) 56–66 65

Table A1
Description of variables, data sources and means of variables.

Average (2000-2014)

Variable Definition Source UAE MENA

First Step
Total Cost (TC) Total expenses including both interest and non-interest expenses [Log] Bankscope 12.06 11.59
Quantity of Output (Y) Total assets [log] Bankscope 15.48 14.56
Price of Funds (W1 ) Ratio of interest expenses to total deposits and short-term funding [log] Bankscope −3.81 −3.59
Price of Labor (W2 ) Ratio of personnel expenses to total assets [log] Bankscope −4.77 −4.57
Price of Capital (W3 ) Ratio of total depreciation and other capital expenses to total fixed assets [log] Bankscope −0.44 −0.35
Price of Output (P) Ratio of total (interest and non-interest) revenue to total assets [log] Bankscope 0.06 0.07
Marginal Cost (MC) Marginal cost of a bank which is estimated on the basis of a translog cost function Bankscope 0.04 0.06

Second Step
Lerner Index A bank-level non-structural indicator of bank competition, measured by the Lerner Bankscope and own 0.56 0.33
index using fixed-effects method, with higher values indicating less competition estimation
in the banking sector
Market Share Market share of a bank calculated as the share of assets of each bank to total banks Bankscope 0.05 0.08
assets
Capital Adequacy The ratio of equity to total assets of a bank [%] Bankscope 17.26 17.65
Inefficiency Overheads costs ratio which is the ratio between overhead costs and total assets Bankscope 0.02 0.03
Funding Fragility Total money market and short-term funding to total assets, which indicating a Bankscope and own 0.13 0.16
bank reliance on wholesale funding calculation
Size Natural logarithm of a bank’s total assets Bankscope 15.48 14.56
Lending Lending is the ratio of total loans to total assets [%] Bankscope 62.64 44.30
Liquidity Liquidity is the ratio between liquid assets to total assets Bankscope 0.23 0.31
Profitability Return on average equity, which is defined as profit before tax as a percentage of Bankscope 2.20 1.49
average equity of a bank [%]
Diversification A proxy for revenue diversification computed as 1-|(Net interest income – Other Bankscope and own 0.62 0.53
operating income)/(Total operating income)|. calculation
Concentration A country-level structural indicator of bank concentration, measured by the Bankscope 0.45 0.62
concentration of assets held by the three largest banks in each country, with
higher value indicating greater market concentration
GDP Growth Real GDP growth (YOY) of a country World Bank 4.59 4.64
Inflation The (end of year) change in CPI of a country World Bank 6.54 8.64
Property Rights An index that measures the degree to which a country’s laws protect private The Heritage 58.33 42.82
property rights and the degree to which its government enforces those laws Foundation
Financial Freedom A measure of banking efficiency as well as a measure of independence from The Heritage 44.67 47.74
government control and interference in the financial sector Foundation

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