COMPETITION-STABILITY NEXUS IN THE BANKING SECTOR OF ZIMBABWE (2009-2016)
Date
2020-09-30
Authors
SAKAROMBE, UPENYU
Journal Title
Journal ISSN
Volume Title
Publisher
UNIVERSITY OF ZIMBABWE
Abstract
This study explored the relationship between competition and stability in the banking sector of
Zimbabwe. The aims were to investigate the relationship between competition and stability in
the banking sector of Zimbabwe and to establish the determinants of bank stability in
Zimbabwe. This was done using the System Generalised Method of Moments (GMM) because
it can solve the endogeneity problem between the measure of stability and the measure of
competition. The GMM uses the lags of the dependent variables as instruments in the equation
thereby managing the endogeneity problem. Panel data of 17 banking institutions from 2009
to 2016 were analysed using Stata 13. The results suggest that competition leads to stability
instead of the fragility. This implies that competition enhances the stability of the banking
system in Zimbabwe. Previous stability level contributes positively to current stability. The
results also suggest that stability in the banking sector can also be enhanced through increase
in loan disbursement and technical efficiency. However, increase in loans in relation to
deposits reduces stability by increasing liquidity risks.
The study recommends financial liberalisation through facilitating existence of a contestable
market, that is, a market with zero entry and exit costs, where there are no barriers to entry
and exit such as sunk costs. The regulatory authority should design proper ease of entry and
exit policies for insolvent banks and reduce the too-important-to-fail subsidies. Enough credit
information should be enabled to flow easily and fast. The government should also enable the
increment of loan customer base by giving property rights to farm owners; respecting and
protecting property rights so that they can be recognised by banks as credible collateral
security. This study also recommends the maintenance of the loans to deposits ratio at optimum
levels in order to control liquidity problems.
Description
Monetary Economics