Institutional Quality and the Performance of Commercial Banks in Southeast Asia

This study assesses the relationship between institutional quality and the performance of commercial banks in Southeast Asia. Using 1,261 observations from 97 commercial banks across seven developing Southeast Asia countries during the period 2011–2023, the paper employs panel data techniques, including pooled OLS, the fixed effects model (FEM), and the random effects model (REM), and conducts diagnostic tests to determine the appropriate estimators. The results reveal a positive relationship between institutional quality and banking performance, suggesting that improving institutional quality can enhance the efficiency of commercial banks in the region. Based on these results, several policy recommendations are proposed for governments and banks to strengthen institutional quality and support the development of the financial system, particularly the commercial banking sector.