Banking competition in Africa: A comparison between subregions

Author: Samuel Boateng Fosu
Institution: University of Wolverhampton
Type of case study: Research

About the research

The African banking sector has witnessed significant reforms over the last three decades following a long period of underperformance. This research seeks to examine the extent of competition in African banking markets after several years of reforms. It further seeks to examine the extent to which competitive outcomes differ across sub-regional banking sectors. Finally, the research investigates how, and to what extent, levels of competition vary between different banking activities.

The findings of the research show that the sub-regional banking markets in Africa generally demonstrate monopolistic competitive behaviour, which is consistent with other emerging markets. These findings suggest that the recent financial sector reforms, such as liberalising interest rates and removing credit ceilings, have had significant impact on increasing competition. Furthermore, the findings provide a benchmark by which future changes in competition levels within the African banking sectors can be measured.

Methodology

The research uses the Panzar-Rosse Model as the main tool for measuring the degree of competition in African banking markets. The static version of the model has been previously applied to measure competition in banking sectors in advanced countries on the assumption the system has reached long-term equilibrium. This study uses a dynamic version of the model to allow for banks still moving towards equilibrium.

The study makes use of bank-level data (primarily revenue, input prices of funds, labour and capital). Other bank-level control variables include the ratios of equity to total assets; net loans to total assets; loan loss provisions to total loans; and total assets.

Series from the World Bank World Development Indicators on the growth rate of gross domestic product and the rate of inflation were used to control for differences in macroeconomic environments.

Publications

Fosu, S. (2013) ‘Banking competition in Africa: Subregional comparative studies’, Emerging Markets Review, 15, pp. 233-254. doi: 10.1016/j.ememar.2013.02.001

This site uses cookies

Some of these cookies are essential, while others help us to improve your experience by providing insights into how the site is being used.

For more detailed information please check our Cookie notice


Necessary cookies

Necessary cookies enable core functionality. This website cannot function properly without these cookies.


Cookies that measure website use

If you provide permission, we will use Google Analytics to measure how you use the website so we can improve it based on our understanding of user needs. Google Analytics sets cookies that store anonymised information about how you got to the site, the pages you visit, how long you spend on each page and what you click on while you’re visiting the site.