The impact of competition on bank risk-taking in sub-Saharan Africa

Abstract:

The impact of competition on bank risk-taking in seven sub-Saharan African countries between 2011 and 2015 is examined. First, the Lerner index is estimated, as the measure of competition. This is then regressed together with other explanatory variables on the ratio of non-performing loans (the measure of bank risk used here). After controlling for bank characteristics and macroeconomic conditions, a strong positive relationship was found between competition and bank risk-taking in the banking market in the seven countries. A weak U-shaped relationship in the banking sectors of some individual countries in the sample was, however, also found.

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