Competition and Banking Efficiency in the CEMAC Zone

Abstract

The objective of this study is to analyze the effect of competition on the cost and profit efficiency of banks in the Economic and Monetary Community of Central Africa (CEMAC), over the period [2003][2004][2005][2006][2007][2008][2009][2010]. The analysis is done in two stages. First, the stochastic frontier approach (SFA) permits us to estimate the efficiency scores and the competition levels measured by the adjusted Lerner index. Second, the competition measures thus obtained, and a set of control variables are introduced into a panel model to explain the cost and profit efficiencies. The results show that competition has been favorable to the profit efficiency, but not to the cost efficiency. This is because the diversification and the debtors' prime rates have evolved in the expected way. However, the creditors' prime rate, bank loans, inflation and the Gross Domestic Product (GDP) have evolved in an unexpected way. We recommend promotion of growth and a better inflation control by the government. As to the banks, they will gain from greater diversification of their products.

Competitive Condition of Sub-Saharan Africa Commercial Banks

“…The efficiency, stability of a banking system and access to finance relate to the level of competitiveness of that banking sector (Love and Per´ıa, 2014;Mudd, 2013;Ningaye et al, 2014;Fu et al, 2014;Schaeck and Cih´ak, 2014). Hence the need for a competitive banking system.…”

“…An extensive body of theoretical and empirical studies has reported the significant role of bank competition in ensuring access to finance (Clarke et al, 2006;Lin et al, 2010;Love and Per´ıa, 2014;Mudd, 2013;Rice and Strahan, 2010;Tan, 2013), efficiency (Mlambo and Ncube, 2011;Ningaye et al, 2014;Pasiouras et al, 2009;PruteanuPodpiera et al, 2008) and stability Fu et al, 2014;Schaeck and Cih´ak, 2014;Ariss, 2010) in any economy. According to Casu et al (2015), competition is good for many reasons; it is an essential force in any economy, it encourages firms to be more efficient and provide better allocation of resources.…”