Recapitalization and Competition of Commercial Banks: Evidence from Selected sub-Saharan African Countries
Date
2021-11-15
Authors
Attama, Marcellus Ifeanyi
Yuni, Denis Nfor
Journal Title
Journal ISSN
Volume Title
Publisher
African Economic Research Consortium
Abstract
In the last two decades, central banks in sub-Saharan African countries have
witnessed a trend of the recapitalization policy, and many more are bracing
up to undertake the same reform. Theoretically, increased capital should
improve capacity to invest, take risks and manage loans, as well as minimize the
probability of failure as the banks become ‘too big to fall’. As important as this
subject is, the empirical evidence, especially for countries in sub-Saharan Africa
(SSA), is sparse and inconclusive. It is on this premise that this study investigated
the effect of recapitalization on bank competition in six selected countries in the region. The study used bank level and macroeconomic indicators between 2000
and 2015 with the aid of the Panzar–Rosse model to examine the level of competition
before and after bank recapitalization. The results show that bank competition is
higher for the period after recapitalization than the period before recapitalization.
The study therefore recommends that bank recapitalization could be necessary,
especially for countries with low minimum paid-up capital.