Banking competition and stability: evidence from West Africa

Joana Cobbinah; Tan Zhongming; Albert Henry Ntarmah; Joana Cobbinah; Tan Zhongming; Albert Henry Ntarmah

doi:10.3934/NAR.2020015

National Accounting Review

2020, Volume 2, Issue 3: 263-284. doi: 10.3934/NAR.2020015

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Research article

Banking competition and stability: evidence from West Africa

School of Finance and Economics, Jiangsu University, Zhenjiang, Jiangsu, 212013, P. R. China

Received: 09 June 2020 Accepted: 27 July 2020 Published: 03 August 2020
JEL Codes: G21, G28

This study explored the relationship between banking competition and bank stability. We used data of 10 countries in West Africa over the period of 2000–2014. Employing Generalized Method of Moments style Panel Vector Autoregressive estimation model, we found out that banking competition is stability-enhancing. Again, findings from the granger causality test show that the relationship between banking competition and bank stability is bidirectional. We also found out that banking competition explains 50 percent of the variations in bank stability in the region. The results from the impulse response function indicated that the impact of one standard deviation shock in the rise of Boone indicator as a proxy for banking competition on stability (bank Z-score) was zero for the first year and dropped to negative through to the tenth year. Overall, our findings largely support the "competition-stability view".
- bank competition,
- bank stability,
- Boone indicator,
- West Africa,
- Panel Vector Autoregression
Citation: Joana Cobbinah, Tan Zhongming, Albert Henry Ntarmah. Banking competition and stability: evidence from West Africa[J]. National Accounting Review, 2020, 2(3): 263-284. doi: 10.3934/NAR.2020015

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Abstract

This study explored the relationship between banking competition and bank stability. We used data of 10 countries in West Africa over the period of 2000–2014. Employing Generalized Method of Moments style Panel Vector Autoregressive estimation model, we found out that banking competition is stability-enhancing. Again, findings from the granger causality test show that the relationship between banking competition and bank stability is bidirectional. We also found out that banking competition explains 50 percent of the variations in bank stability in the region. The results from the impulse response function indicated that the impact of one standard deviation shock in the rise of Boone indicator as a proxy for banking competition on stability (bank Z-score) was zero for the first year and dropped to negative through to the tenth year. Overall, our findings largely support the "competition-stability view".

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