Testing the contestability in Kuwait banking industry

Abstract

Purpose

The two aims of this paper are: first, to investigate the market structure of Kuwait banking industry and second, to evaluate the monopoly power of banks during the years 1993‐2002.

Design/methodology/approach

The paper examines the market structure using the most frequently applied measures of concentration k‐bank concentration ratio (CRk) and Herfindahl‐Hirschman Index (HHI) and evaluates the monopoly power of banks using the H‐ statistic by Panzar and Rosse.

Findings

Both of the concentration indices indicate that Kuwait had moderately concentrated market. The Panzar and Rosse H‐statistic suggests that Kuwait banks operate under perfect competition.

Practical implications

Kuwait Central Bank should be very cautious in granting mergers among banks, in particular among large core banks. The results also suggest that Kuwait Central Bank should stop granting permission to banks to open new branches because the country is over branched.

Originality/value

This original paper investigates the market structure of Kuwaiti banking industry and evaluates the monopoly power of banks during 1993‐2002.

Citation

Al‐Muharrami, S. (2008), "Testing the contestability in Kuwait banking industry", Studies in Economics and Finance, Vol. 25 No. 4, pp. 253-266. https://doi.org/10.1108/10867370810918146