Banking Industry Competition and Stability in Zimbabwe
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Date
2021-11-12
Authors
Makena, Philton
Journal Title
Journal ISSN
Volume Title
Publisher
African Economic Research Consortium
Abstract
The study investigates the impact of changes in banking industry competition on the
industry’s stability in Zimbabwe using a sample of 18 banks for the period 2009-2017.
The period of study coincides with an era when the country experienced growth
and stability (under full dollarization) after a decade of an economic crisis (prior to
full dollarization). First, the study employs a modified version of the Boone (2008)
Indicator to establish the evolution of competition. Second, the -score is employed
to investigate the nexus between banking industry competition and stability in the
country. The study establishes that banking industry competition in Zimbabwe
registered a pronounced increase for the period 2009-2012. This was, to some extent,
attributed to the banks’ aggressive business models that sought to increase client
bases by offering loans in order to increase asset bases and profitability. This trend
was, however, reversed post-2012, as competition consistently fell between 2013
and 2017, mainly due to falling demand for both personal and business loans and a
measured approach by banks in issuing new loans following a rise in non-performing
loans (NPLs). The relationship between banking industry competition and stability is
strong and competition appears to be good for the country’s banking industry. Our
findings have potentially important policy implications regarding the design and
enforcement of regulations that create the right incentives to safeguard stability,
while at the same time conscious of the link between competition and stability.
Understanding the dynamics of competition and stability is crucial, not only to
banks, bank regulators and policy makers in Zimbabwe, but also to other developing
countries, as they have the leverage to shape bank competition to levels that produce
desired levels of stability. To banks, competition has implications on their access to
finance and stability of the industry
Description
Keywords
Dollarization, , Competition, , Stability, , Boone Indicator