The Convergence of Banking Efficiency in ASEAN-5 Banking
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UNIVERSITI MALAYSIA SARAWAK
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The convergence hypothesis, which is developed in the context of commercial banking in ASEAN-5 countries and has been applied in this study. Apart from that, Phillips and Sul convergence test is a nonlinear model which contains time varying components. Therefore, this nonlinear model is very crucial as it investigates the possible convergence or divergence over time of commercial banks in ASEAN-5 in terms of efficiency performance and observes the heterogeneous transition paths across countries commercial banks. From this study, results on the research indicate that commercial banks from Indonesia are converging among themselves. Indonesian government intervention to aid its banking sector leads to increment in efficiency. As a result, the banking sector in Indonesia becomes more resilience to another financial shock in 2008 and makes the commercial banks efficiency and performances sustainable. Another observation from this study implies that ASEAN-5 commercial banks tend to converge together. From the results, commercial banks from Malaysia and Singapore are converging towards the same efficiency path. Commercial banks from Philippines and Thailand are also converging under the same efficiency performance. All in all, it is crucial to see the efficiency performance of commercial banks in ASEAN-5 economies whether they are converging or diverging towards a common path. This is because it allows for these countries namely Malaysia, Singapore, Indonesia, Thailand and Philippines to take a similar action to any economic and financial shock to avoid the action of ones’ country from jeopardizing stability of banking sector in other ASEAN countries.