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Credit risk and bank competition in Sub-Saharan Africa

Michael Brei, Luc Jacolin and Alphonse Noah

Working papers from Banque de France

Abstract: This paper investigates the impact of bank competition in Sub-Saharan Africa on bank non-performing loans, a measure of credit risk. Using bank-level data for a sample of 221 banks from 33 countries over the period 2000-15, we find a non-linear or U-shaped relationship between bank competition (measured by the Lerner Index) and credit risk. In other words, increased bank competition has the potential to lower credit risk via efficiency gains (lower credit cost, operational gains). However, the positive effects may be outweighed by adverse effects of excessive competition (lower profit margins, increased risk incentives). We also find that credit risk in Sub-Saharan Africa is not only related to macroeconomic determinants, such as growth, public debt, economic diversification, financial deepening and inclusion, but also to the regulatory environment. These results may provide useful insights on how to design and adapt prudential and regulatory frameworks to the specific needs in developing countries.

Keywords: Bank competition; Credit risk; Bank stability; Lerner index; Africa. (search for similar items in EconPapers)
JEL-codes: G21 G28 D4 O55 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-afr, nep-ban and nep-com
Date: 2018
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Working Paper: CREDIT RISK AND BANK COMPETITION IN SUB-SAHARAN AFRICA (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:664

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