Assessing Competitive Advantage of Banks in GCC Countries

Abstract

The purpose of this paper is to assess competitive advantage gained by large-sized banks in the Gulf Cooperation Council (GCC) countries. To investigate the association between return to scale and profitability, the authors have adopted quintile and logistic regression analysis, using data for 81 and 84 banks operating in GCC countries during the years 2016 and 2015, respectively. Their findings indicate a positive association between bank size and increasing return to scale, implying that bigger banks show increasing return to scale, but with decreasing rate, as represented by the negative coefficient of the square of the asset variable. Their results also show medium and upper quintiles of profits are significantly and positively associated with assets, but negatively associated with deposits, implying banks with larger deposits are facing liability management problems. In general, these results support the evidence that large-sized banks in GCC countries are displaying competitive advantage gains over small-sized banks, but these competitive advantage gains are decreasing with bank size increase.