The Market Structure-Profit Relationship in the Saudi’s Banking Industry

Abstract

This study examines the structure-profit relationship in the Saudi’s banking industry. The study sample consists of all the local banks operating in the market over the 2005-2010 period. The hypotheses related to the market power structure which includes the Structure-Conduct-Performance Hypothesis (SCP), and the traditional Efficiency Hypothesis (EH). Tests of the hypotheses are performed by regressing profits against measures of concentration, and market share. The empirical results generally support the traditional Efficiency Hypothesis. Thus, the main implication of these results for the policymakers of Saudi’s banking sector, is to expand the ongoing deregulation efforts with the aim of reducing the industry concentration and enhancing the market competitiveness.