The structure of Indonesian banking and insurance industry

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1 Citation (Scopus)

Abstract

As a bank-based country, Indonesia currently has more than 100 banks managing most of country's financial assets. In addition, there is also a large numbers of insurance companies operating in Indonesia. Despite the numbers of bank and insurance companies, market shares are dominated by only few big companies. Meanwhile, a plenty of smaller companies are competing for the remaining market shares. This paper investigates the market structure of banking and insurance industries, using market power and concentration ratio as main indicators. Panzar-Rosse H Statistics was employed to measure the market power and Herfindahl-Hirschmann Index (HHI) to measure market concentration. The result shows there are market power and high competition in Indonesian banking and insurance industry. These findings confirm the 'too-big-to-fail' theory, in which certain companies are so large and interconnected that this interconnection will, as a result, provides kind of 'incentive' for companies to take more risk since there is a possibility to shift the loss from shareholders to taxpayers.

Original languageEnglish
Pages (from-to)187-193
Number of pages7
JournalInternational Journal of Economic Research
Volume14
Issue number12
Publication statusPublished - 1 Jan 2017

Keywords

  • Bank
  • Competition
  • Insurance
  • Market power

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