Borrower discipline in ASEAN banks: the role of market concentration

Purpose The purpose of this paper is to examine the asset side of market discipline in five developing ASEAN nations, that is, whether borrowers pay higher interest rates (price-based mechanism) and/or demand more loans (quantity-based mechanism) from high-quality banks, considering the moderating effect of market concentration. Design/methodology/approach The authors use the two-step System Generalized Method of Moments estimator on a sample of 90 listed banks in five developing ASEAN countries: Indonesia, Philippines, Malaysia, Thailand and Vietnam in the period 2006–2022. In addition, the authors perform robustness tests with different proxies for market concentration and bank risk. Findings The results of this study support the existence of borrower-induced market discipline through both price- and quantity-based mechanisms. Specifically, ASEAN-5 borrowers are eager to accept higher interest rates and demand more loans from larger banks. Furthermore, the authors observe that the market structure has a detrimental impact on loan growth and lending interest rate, even when banks have lower default risk, credit risk and/or market risk Originality/value To the best of the authors’ knowledge, this study is the first to examine the relationship between market concentration, bank risk-taking and borrower discipline in ASEAN-5. In addition, the authors examine several aspects of bank risk, including stock market risk, credit risk and default risk, to provide a comprehensive view of the impact. Finally, market structure has not been examined in the research on borrower discipline in ASEAN-5, which encourages the authors to fill this gap.