Optimal level of risks increased competition which

This preview shows page 17 - 20 out of 28 pages.

optimal level of risks increased competition, which increased the number of depositors to banks. The second analysis considers the effect of different ownership structures on profits, market shares, and interest rates but does not take into account risk activities. From the research conducted, the following conclusions were made regarding the SBs.
The presence of SBs increases rivalry in the banking industry and increases social welfare as the institution is non-profit oriented. SBS is less risk-oriented compared to CBS, which are profit-oriented. An interesting fact is research has shown that if CBS adopt the expense preference behaviour theory, they may increase their levels of income and profits. When a bank is competing with the SBs, it is less stable and less profitable. All these findings are relevant and can yield policymaking in the competition of the CBS and the SBs. The expense preference theory is focused on the wellbeing of staff and other functions of the bank, which are not profit-making. Managers using this kind of theory work with the concept that profit maximization comes last after the utility of people and other activities of the financial institution has been taken care of. The expense preference theory is commonly practised in SACCOs that are interested in improving the social and economic welfare of the members. Thus, compared to commercial banks that are profit-oriented, the Stockholder Banks are interested in the general interest of the people. When the SBS show concern and care for the people, they attract more people to come and save with them in their financial institution. The expense preference behaviour theory is assumed to create competition in the market, which reduces customers for commercial banks. However, research conducted has shown if the commercial bank can engage in expense preference behaviour in some of their operational activities, they can equally make profits. The banks can create profits by attracting customers to them who feel the banks are focused on the overall wellbeing of the society while at the same time earning profit. 7 Economies of scale theories
which creates more concentration and competition of banks. The efficient structure paradigm by (Demsetz 1973) states that the winning banks will receive more income and shares to become the most competitive and concentrated in the market. The size of the bank is assumed to influence the kind of profit it makes in the market. Big banks have economies of scale that make operational cost cheap and making of profit also easy for big banks (Hughes and Mester (2013) and Kovner, Vickrey, and Zhou (2014)). In the European countries, Beccalli, Anolli, and Borello (2015) show that big banks operate at low cost and provide a wide range of services with efficient services than their smaller competitors. In the US, Feng and Serlitis

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture