Recapitalization and Competition of Commercial Banks: Evidence from Selected Sub-Saharan African Countries
Date
2022-06
Authors
Ifeanyi Attama, Marcellus
Nfor Yuni, Denis
Journal Title
Journal ISSN
Volume Title
Publisher
African Economic Research Consortium
Abstract
In the past 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. Recapitalization will act as a built-in stabilizer and shock absorber,
which will make banks self-reliant on government funds and higher capacity to
invest. However, bank recapitalization should be treated with caution to avoid the
band-wagon effect but should reflect a country’s economy of scale and calculated
appropriate statistics that improves bank capacity
Description
Keywords
Bank, Recapitalization, Competition, Panzar-Rosse, Sub-Saharan Africa