Competition and Commercial Banks Risk-Taking: Evidence from Sub-Saharan Africa Region

This study investigates the relationship between competition and the risk-taking attitude of banks. We test how this relationship manifests in the Sub-Saharan African(SSA) region’s commercial banks in light of the competition-fragility view, using the generalized methods of moments. We studied 440 commercial banks in 37 SSA countries over the period 2006–2015. The results provide evidence that supports a positive relationship between competition and banks’ overall risk as well as their credit risk but suggests that off-balance sheet risk reduces with competition. We, therefore, conclude that the propensity to undertake higher risk in a competitive banking environment largely accounts for fragility as argued in the competition-fragility view.

Keywords

Competition, risk-taking behaviour, Lerner index, generalized method of moments, commercial banks, G21, G29, L10

Citation

APPLIED ECONOMICS, 2018, 50 (44), pp. 4774 - 4787

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