Do High-Cost Banks Compete Less? An Efficiency-Competition Nexus in the Indonesian Banking Industry

This study examines how cost efficiency and green credit policies influence banking competition in Indonesia, with a particular focus on the role of green credit portfolios. Using panel data from commercial banks, the analysis applies a fixed-effects model with clustered standard errors to capture variations in market behavior. Results show that higher cost efficiency consistently strengthens competition, as efficient banks compete more aggressively through pricing strategies and market expansion. The implementation of green credit policies intensifies structural competition, although a slight increase in market power suggests a new balance between competition and profitability. Furthermore, banks with larger green credit portfolios experience stronger competitive effects, indicating that sustainable financing enhances the relationship between efficiency and competition. These findings highlight the strategic role of green credit in fostering a more competitive and sustainable banking sector. The study provides insights for policymakers to design green policies that encourage both efficiency and sustainability, while guiding banks to leverage cost efficiency and green portfolios as drivers of long-term competitiveness.