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http://dx.doi.org/10.5762/KAIS.2016.17.1.225

Relationship between competition in banking industry and bank's risk-seeking tendency  

Sung, Jimin (Business Administration, Chung-Ang University)
Park, Chang Gyun (Business Administration, Chung-Ang University)
Publication Information
Journal of the Korea Academia-Industrial cooperation Society / v.17, no.1, 2016 , pp. 225-233 More about this Journal
Abstract
This study examined how the level of competition in the banking industry affects the risk-seeking tendency of individual banks. In earlier studies, the NPL ratio was used as an indicator of the risk-seeking tendency, but this ratio has limits because it is an ex post indicator of the risk. Therefore, the asset risk was chosen as a new indicator of the risk-seeking tendency, which is an ex ante measure of the risk, and the data were analyzed. The results suggested that there is a negative correlation between the level of competition of the banking industry and the risk-seeking tendency. Interestingly, opposite results were obtained when the NPL ratio was applied as an indicator of risk-seeking tendency. Therefore, the correlation between the level of competition in the banking industry and the risk-seeking tendency depends on the indicator of the risk-seeking tendency. This means choosing the appropriate indicator is the key component leading to precise results. The asset risk is more consistent with the concept of risk-seeking tendency than the NPL ratio, and it is a more appropriate indicator considering that the asset risk is a relatively less affected indicator other than risk-seeking tendencies.
Keywords
Bank's risk-taking; Competition in banking industry; Korean banking industry; NPL ratio; Risk weighed asset;
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