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The Impact of Banking Sector Competition on Banks’ Risk-Taking in Transition Economies of Central and South-Eastern Europe

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  • Mustafa Arben

    (Assistant Professor University “Kadri Zeka” Gjilan, Faculty of Economics and CERGE-EI Teaching Career Integration Fellow, PraguePrague, Czech Republic)

  • Toçi Valentin

    (Associate Professor University of Prishtina “Hasan Prishtina”, Faculty of Economics, PrishtinaPrishtina, Kosovo)

Abstract

This paper uses the Panzar-Rosse H-statistic to provide empirical evidence on the impact of competitive behaviour of banks on risk-taking, using the Fixed Effects Vector Decomposition Method on panel data of banks in 15 Central and South-Eastern Europe countries during the period 1999-2009. The findings suggest that banking sector competition has had a negative impact on banks’ risk-taking implying that competition contributed to the improvement of the loan-portfolio quality. However, the results differ significantly when distinguishing between the EU and non-EU countries of the CESEE region. While for the EU countries the relationship between banking sector competition and risk-taking remains negative, this relationship is positive for the non-EU countries of the region, suggesting that an increase of competition in the non-EU countries may be detrimental for the stability of the banking sector in these countries. These results are robust to different model specifications and measures of competition

Suggested Citation

  • Mustafa Arben & Toçi Valentin, 2018. "The Impact of Banking Sector Competition on Banks’ Risk-Taking in Transition Economies of Central and South-Eastern Europe," South East European Journal of Economics and Business, Sciendo, vol. 13(1), pages 31-42, June.
    • Handle: RePEc:vrs:seejeb:v:13:y:2018:i:1:p:31-42:n:4
    DOI: 10.2478/jeb-2018-0004
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    References listed on IDEAS

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