Impact of the level of bank liquidity on the relationship between concentration and bank efficiency: the case of the WAEMU

In this article, we investigate the impact of bank liquidity level on the relationship between bank concentration and efficiency using a panel dataset of 60 banks across 7 WAEMU countries over the period 2005-2016. Our empirical methodology is based on the 2SLS IV estimator and non-linear analysis. Our results show that the concentration of the banking sector and the bank liquidity are negatively correlated with cost efficiency in the WAEMU. This is consistent with the Quiet Life Hypothesis which established that concentrated market incites suboptimal behaviors damaging to the banking profitability. However, the effects of concentration on cost efficiency are reduced for banks with lower levels of excess liquidity. This result shows that the holding of excess liquidity reinforces the effects of the Quiet Life Hypothesis.

Determinants of Bank M&As in Central and Eastern Europe

This paper analyzes the determinants of bank mergers and acquisitions (M&As) from a bank-level perspective. The main objective of the study is to identify those mutual characteristics of all banking institutions from Central and Eastern Europe that are prone to be acquired versus acquirer, or national versus cross-border. Using a database of more than 200 M&As transactions between 2000 and 2018 within Central and Eastern Europe, we document the main characteristics that influence the decision of merging, including the size of the bank, profitability, lending activities, liquidity, bank concentration, banking system stability, government effectiveness, regulatory quality, and the level of inflation. Higher effective average tax rate, which is associated with reduced tax avoidance, influences banks in a positive manner to be involved in the M&A process, findings that hold for targeted banks and domestic transactions. Furthermore, the analysis highlights the changes the financial crisis has projected on investors’ behavior.

Competitive Conditions in Nepalese Commercial Banks

This study aims to analyze the competitive conditions of commercial banks in Nepal. Competition is measured through structural and non-structural measures of bank competition. Data were taken from 21 commercial banks of Nepal using pooled sampling method, including five commercial banks based on the highest total assets and sixteen commercial banks using random sampling. Concentration ratio, Herfindahl-Hirschman Index, H-statistic and Lerner Index measures were used to assess the competitive position of Nepalese commercial banks. Panel data regression model with bank fixed effect and time fixed effect was employed to measure H-statistic and Lerner index. Findings showed the increasing pattern of capitalization and the decreasing trend of non-performing loan ratio, indicating that Nepalese commercial banks have a low possibility of loan default and, are more financially stable. It also showed the declining trend of bank concentration and HHI, suggesting that Nepalese commercial banks are losing their monopoly power and becoming more competitive in recent years. Competition in the loan market was found higher than deposit market competition. Banks have to pay special attention to loan portfolio management rather than deposit collection strategies. This study concludes that the competitive condition of Nepalese commercial banks is monopolistic. Therefore, appropriate strategies might be taken into action to sell financial products and services competitively.

The Trade-off between Bank Concentration and Competition on Financial Stability within the East African Community

This paper examines bank concentration, competition, and financial stability nexus across five emerging countries (Kenya, Tanzania, Uganda, Rwanda & Burundi) within the East African Community (EAC). The methodological approach applied provides a critical and original contribution to the existing literature by testing the various theories explaining the relationships between bank concentration, competition, and stability. A two-step system Generalised Methods of Moments (GMM), is employed on a sample of 149 banks with 1,805 annual observations over the period 2001–2018. The findings reveal that high concentration and low competition lead to more financial stability and less probability of bank default risk. In addition, a non-linear relationship between competition and stability is not observed, revealing that greater competition undermines bank stability and makes banks more vulnerable to default risk. The findings thus lend to support the concentration-stability hypothesis that greater market power leads to more bank stability even after controlling for bank-specific, industry, and macroeconomic variables. The findings provide a significant policy contribution on the trade-off between bank concentration and competition, and the evaluation of financial stability.

The Role of Banking Concentration on Financial Stability

Globally, financial instability is a major source of concern among policy makers and bank regulators, particularly after the 2007-09 global financial crisis. Motivated by inconsistent theoretical evaluations on the impact of bank concentration on the likelihood of a systemic banking crisis, this paper investigates the role of bank concentration on financial stability in Kenya with competition as an intervening variable. The novelity of this study lies on the use of structural equation modeling (SEM) in the analysis of direct and indirect effects of bank concentration on financial stability. Results show that higher concentration induces banks to increase cost of service provision which may aggravate credit risks and expose banks to systemic risks. Further, competition plays a significant role in ensuring financial system stability which supports the ‘competition-stabiliy’ hypothesis. Uncompetitive banking industry may therefore provide incentive for banks to take excessive risks, which renders them vulnerable to systematic risks. We also establish that tight regulations enhances concentration and financial stability but hinders competition. These new insights give bank regulators and policy makers an incentive to formulate and implement the right policies to improve financial stability.

Determinants of Commercial Banks' Performance in Malawi: An Autoregressive Distributed Lag (ARDL) Approach

<abstract> <p>There has been a monotonic increase in research investigating the performance of commercial banks across the globe. This is a recognition that the banking industry has a significant contribution to the service sector and national output. This paper examined the existence of the structure-conduct performance (SCP) and efficient market hypotheses by employing an autoregressive distributed lag (ARDL) approach for a period between 1990 and 2020. The study revealed the existed of both paradigms due to a strongly statistically positive and significant coefficients of bank concentration and the size of the banking sector using the computed composite profitability measure (CPM). The paper suggests various policy implications on internal and external determinants of commercial bank's performance.</p> </abstract>

Bank Concentration and Economic Growth Nexus

This paper examines the relationship between bank concentration and economic growth in Organization of Islamic Cooperation (OIC) countries. This is done using the system GMM estimators on a panel data sample consisting of 41 countries and 650 observations. Our analysis reveals that bank concentration has negative impact on economic growth and this relationship is non-linear. Furthermore, the impact of bank concentration on economic growth is found to be dependent on the country’s income and corruption levels. Therefore, it seems reasonable to conclude that bank concentration has negative impact on the economic growth in OIC countries.