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Competition and Bank Stability

Author

Listed:
  • 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.)

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.

Suggested Citation

  • Sanderson Abel & Pierre Le Roux & Learnmore Mutandwa, 2018. "Competition and Bank Stability," International Journal of Economics and Financial Issues, Econjournals, vol. 8(3), pages 86-94.
    • Handle: RePEc:eco:journ1:2018-03-11
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    References listed on IDEAS

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    More about this item

    Keywords

    Competition; Stability; Fragility; Non-performing Loans; Lerner Index; Generalised Method of Moments;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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