Competitive Conditions in the Tanzanian Commercial Banking Industry

Abstract

Since 1991, Tanzania has made important improvements in reforming its financial sector, dismantling the state-dominated banking sector and allowing foreign bank entry. Despite this, the banking industry is still concentrated with low accessibility to financial services. Large foreign banks dominate the financial landscape, preventing competitive dynamism to permeate the sector. This paper analyses the competitive nature of the Tanzanian banking industry from 2004 to 2008. Utilizing a rich bank level data set, we employ the Panzar-Rosse methodology to compute the competitive index, taking into account risk, efficiency, regulatory and macroeconomic factors. The results show that banks in Tanzania earned their income under conditions of oligopolistic conduct. Moreover, the competitive index derived from an interest revenue equation was not significantly different from that obtained using an aggregate revenue measure. This suggests that the degree of contestability from traditional intermediation activities approximates overall bank behaviour. The overall message is that greater market contestability can be achieved by adopting measures aimed at stimulating competitiveness in the banking sector, including consolidating gains on the macroeconomic front and allowing more foreign bank entry so as to increase the spread of banking services.

Banking Activity Sensitivity to Macroeconomic Shocks and Financial Policies Implications: The Case of CEMAC Sub-region

“…This econometric result is somehow legitimizing the fact that banks are reluctant to grant long‐term credits in the area (Saxegaard, ; Fouda, ; Asongu, , , , ; Nguena and Tsafack Nanfosso, ). This also confirms the substantially documented issues of bank inefficiency in the African continent (Mlambo and Ncube, ; Rajhi and Salah, ; Zhao and Murinde, ; Mwega, ; Mweda and Mutoti, ; Biekpe, ; Simpasa, ; Poshakwake and Qian, ). Authorities in the zone must control variability in the evolution of banking system provisions at the macroeconomic level in order to mitigate potential adverse effects.…”

Financial Liberalization and Foreign Bank Entry on the Domestic Banking Performance in MENA Countries

“…Both Mlambo and Ncube (2011) and Biekpe (2011) argue that, under such an environment, a greater challenge for the regulatory authorities is to ensure competitiveness in the banking industry that may eventually enhance social welfare in general. In another study, Simpasa (2011) finds that, following financial deregulation in 1991, the state‐dominated banking sector has opened up to large foreign banks and evolved as an oligopoly during the 2004–2008 sample period.…”

The Financial Determinants of Operating Efficiency for Lowand High Competitive Banks in Egypt

“…In Zambia, positive association is found between growth of bank revenues and increasing competition (Simpasa, 2011(Simpasa, , 2013.The MENA region shares similar aspects that increasing bank costs affect operating efficiency negatively (Eisazadeh and Shaeri, 2012). The negative association between non-interest expense and bank efficiency is also realized in the Mexican banks (Castellanos and Garza-García, 2013).…”