Empirical Linkages between Branching, Lending, and Competition: A Study of Pakistani Banks

Abstract

This study examines the relationship between branching, lending, and competition in Pakistani banks. Due to denationalization, Pakistani banks started to increase their branch networks and change loan and deposit policies. To check the effect of geographic diversification and distance on the performance of banks, the market power of loans and deposits, and the effect of large and medium banks on the performance of small banks, a sample of commercial banks is selected. The study finds that geographic diversification and distance between bank branches and headquarters do not affect the performance of the banks, but geographic diversification of banks in different areas affects the market power of loans and deposits. The results show that medium and large banks do not affect the performance of the small banks because small banks are better performing in the local market. Medium and large banks are affected by the market power of the loans and deposits of small banks. The study recommends an important policy regarding branch management and its effect on bank performance.

Keywords

• geographic diversification
• distance
• performance
• monopoly market power of loan and deposit
• medium and large banks