Competition and Bank Stability

Sanderson Abel, Pierre Le Roux and Learnmore Mutandwa
Additional contact information
Sanderson Abel: Senior Economist, Bankers Association of Zimbabwe, 14177 Gunhill Avenue, Zimbabwe,
Pierre Le Roux: Nelson Mandela University, South Africa
Learnmore Mutandwa: Lecturer, Midlands State University, Zimbabwe.

International Journal of Economics and Financial Issues, 2018, vol. 8, issue 3, 86-94

Abstract: The study investigates the effect of competition on bank stability in the Zimbabwean banking sector. After encountering episodes of bank failures, which altered the competitive landscape and episodes of high non-performing loans which contributed to banking sector insolvency and bank failure motivated the study. The study uses a two - step method to establish whether the Zimbabwean banking systems adheres to competition stability or competition fragility hypothesis. In the first step the study estimates the measures of financial sector competition and stability. In the second step, the study applies the generalised method of moments dynamic panel data to test the competition-stability and competition-fragility hypothesis respectively. The results show that the banking sector supports the competition fragility hypothesis which means that an increase competition in the banking sector leads to banking fragility. Bank ownership has no influence on the stability of the banks. The study recommends that the central bank should closely monitor banks to ensure adherence to international best practice in credit management and moderate pro-competitive policies.

Keywords: Competition; Stability; Fragility; Non-performing Loans; Lerner Index; Generalised Method of Moments (search for similar items in EconPapers)
JEL-codes: G01 G21 G33 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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