Is Banking Concentration in CEMAC Socially Optimal?
Asian Journal of Economics, Business and Accounting,
Page 128-145
DOI:
10.9734/ajeba/2022/v22i2130696
Abstract
The objective of this paper is to verify whether the structure of the CEMAC banking market tends towards a socially optimal concentration. The theoretical basis of this study is built around the debate between structuralists and Chicago School advocates. In order to carry out this work, we draw on the models of Chauveau and Saidane (1991) and Mirzaei and Moore (2014). The study covers all CEMAC countries over the period 2002-2019. The selected model is estimated by the lagged OLS of its explanatory variables and the 2SLS. We obtain the robust result that the structure of the CEMAC banking market does not tend towards a socially optimal concentration. In fact, banking concentration and control of corruption hinder competition among banks and hence, reduce satisfaction of customers. This occurs because CEMAC banking concentration was achieved through external growth instead of banks ‘efficiency. To this end, economic policy recommendations for further bank restructuring in CEMAC are proposed.
Keywords:
- Banking concentration
- social optimum
- credit market
- restructuring
How to Cite
Parfait, K. E., Colin, B. F., & Bouba, W. (2022). Is Banking Concentration in CEMAC Socially Optimal?. Asian Journal of Economics, Business and Accounting, 22(21), 128-145. https://doi.org/10.9734/ajeba/2022/v22i2130696
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Hugon P. Rentabilité du secteur bancaire et défaillances du développement: le cas de la CEMAC. Rev Tiers Monde. 2007;192:771-88.
COBAC. annual activity report; 2018.
Saidane D. Are our banks doing their jobs? Afr Banker, May; 2017.
Chauveau T, Saidane D. Le pouvoir des banques sur le marché du crédit: essai de comparaison internationale. Obs Diagn Econ. 1991;35(1):135-66.
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Mirzaei A, Moore T. What are the driving forces of bank competition across different income groups of countries? J Int Financ Markets Inst Money. 2014;32:38-71.
DOI: 10.1016/j.intfin.2014.05.003.
Saidane D, Abdallah B. Sustainability and financial stability: evidence from European banks. Econ Bull. 2020;40(2):1769-80.
Nguena CL. ’Financing SMEs in Cameroon in a context of financial crisis’ MPRA Paper. Germany: University Library of Munich; 2012.
Beck T, Cull R. Banking systems in Sub-Saharan Africa: a state of play. Rev econ financ. 2014;116.
Geoffron P. Analyses structurelles des industries bancaires et nouvelles concurrence financière. Rev econ financ. 1994;28(1):27-48.
DOI: 10.3406/ecofi.1994.2507.
Keynes JM. The general theory of employment, interest, and money. New York, Harcourt: Brace & Co; 1936.
Shaffer S. The winner’s curse in banking. J Financ Intermed. 1998;7(4):359-92.
DOI: 10.1006/jfin.1998.0251.
Gbongue F, Planchet F. Analyse comparative des modèles de construction d’une courbe des taux sans risque dans la zone CIPRES. Bull Fr d'actuariat,. 2015;15(30, Juillet-Décembre):129-68.
Leroy A. “Analysis of the effects of banking competition on stability and efficiency: a European perspective” [PhD thesis]. University of Orléans; 2016.
Klein MA. A theory of the banking firm. J Money Credit Banking. 1971;3(2).
DOI: 10.2307/1991279.
Monti M. ’Deposit, credit, and interest rate determination under alternative bank objectives’, in. Mathematical Methods in Investment and Finance. G.P; 1972.
Lerner AP. The concept of monopoly and the measurement of monopoly power. Rev Econ Stud. 1934;1(3):157-75.
DOI: 10.2307/2967480.
Berger AN, Klapper LF, Turk-ariss R. Bank competition and financial stability. J Financ Serv Res. 2009;35(2):99-118.
DOI: 10.1007/s10693-008-0050-7.
Markowitz H. Portfolio selection. J Fin. 1952;7(1):77-91. 33.
Diamond DW. Financial intermediation and delegated monitoring. Rev Econ Stud. 1984;51(3):393-414.
DOI: 10.2307/2297430.
Boyd JH, Prescott EC. Financial intermediary-coalitions. J Econ Theor. 1986;38(2):211-32.
DOI: 10.1016/0022-0531(86)90115-8.
Williamson SD. Costly monitoring, financial intermediation, and equilibrium credit rationing. J Monet Econ. 1986;18(2):159-79. DOI: 10.1016/0304-3932(86)90074-7.
Allen F. The market for information and the origin of financial intermediation. J Financ Intermed. 1990;1(1):3-30.
DOI: 10.1016/1042-9573(90)90006-2.
Stiglitz JE, Weiss A. Credit rationing in markets with imperfect information. Am Econ Rev. 1981;71(3):393-410.
Gale D, Vives X. Dollarization bailouts, and the stability of the banking system. Q J Econ. 2002;117(2):467-502.
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Ahokpossi C. Determinants of bank interest margins in Sub-Saharan Africa, IMF Working paper n° 13/34. IMF Working Papers. 2013;13(34).
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Prao YS, Kamalan E. Bank concentration and interest Rate Margin in WAEMU zone. Int Econ J. 2019;33(3):493-508.
DOI: 10.1080/10168737.2019.1585903.
Jeon BN, Olivero MP, Wu J. Do foreign banks increase competition? Evidence from emerging Asian and Latin American banking markets. J Banking Fin. 2011;35(4):856-75.
DOI: 10.1016/j.jbankfin.2010.10.012.
Van hoose D. The Industrial Organization of Banking, Bank behavior, Market Structure and Regulation. Berlin, Heidelberg: Springer-Verlag; 2010.
Maudos J, Solís L. The determinants of net interest income in the Mexican banking system: an integrated model. J Banking Fin. 2009;33(10):1920-31.
DOI: 10.1016/j.jbankfin.2009.04.012.
Claeys S, Vander Vennet R. Determinants of bank interest margins in Central and Eastern Europe: A comparison with the west. Econ Syst. 2008;32(2):197-216.
DOI: 10.1016/j.ecosys.2007.04.001.
Leuvensteijn M, Sorensen CK, Bikker JA, Rixtel AARJM,. ’Impact of bank competition on the interest rate pass-through in the euro area’, Tjalling C Koopmans Research Institute Discussion Paper Series nr: 08-; 2008.
Demirgurc-Kunt A, Laeven L, Levine R. Regulations, market structure, institutions, and the cost of financial intermediation. J Money Credit Banking. 2004:593-622.
Mirzaei A, Moore T, Liu G. Do market structure matter on bank’s profitability and stability? Emerging vs advanced Economies. J Banking Fin. 2013;37(8):2920-37.
DOI: 10.1016/j.jbankfin.2013.04.031.
Smirlock M, Brown D. Collusion, efficiency, and pricing behavior: evidence from the banking industry. Econ Inq. 1986;24(1):85-96.
DOI: 10.1111/j.1465-7295.1986.tb01798.x.
Park KH. Has bank consolidation in Korea lessened competition? Q Rev Econ Fin. 2009;49(2):651-67.
DOI: 10.1016/j.qref.2008.02.003.
Staikouras CK, Koutsomanoli-Fillipaki A. Competition and concentration in the new European banking landscape. Eur Financ Manag. 2006;12(3):443-82.
DOI: 10.1111/j.1354-7798.2006.00327.x.
Bresnahan TF. The oligopoly solution concept is identified. Econ Lett. 1982;10(1-2):87-92.
DOI: 10.1016/0165-1765(82)90121-5.
Turk-Ariss R. Competitive behavior in Middle East and North Africa banking systems. Q Rev Econ Fin. 2009;49(2):693-710. DOI: 10.1016/j.qref.2008.03.002.
Beck T. Stock markets, banks and economic development: theory and evidence. EIB Pap. 2003;8:36-54.
Anginer D, Demirguc-Kunt A, Zhu M. How does competition affect bank systemic risk? J Financ Intermed. 2014;23(1):1-26. DOI: 10.1016/j.jfi.2013.11.001.
Beck T, De Jonghe O, Schepens G. Bank competition and stability: Cross-country heterogeneity. J Financ Intermed. 2013;22(2):218-44.
DOI: 10.1016/j.jfi.2012.07.001.
Al-Karasneh FM. Market Structure and performance in the GCC banking sector: evidence from Kuwait, Saudi Arabia, and UAE. Savings Dev. 2005;29(4):391-414.
Shaffer S. ’Comment on "What Drives Bank Competition? Some International Evidence’ by Claessens S and Laeven L. J Money Credit Banking. 2004;36(3):585-92.
Breusch TS, Pagan AR. A simple Test for Heteroscedasticity and Random Coefficient Variation. Econometrica. 1979;47(5):1287-94.
DOI: 10.2307/1911963.
Avom D, Eyeffa S. Quinze ans de restructuration bancaire dans la CEMAC: qu'avons-nous appris? Rev econ financ. 2007;89.
Avom D, Ongo B. Les marges d’intérêts contribuent-elles à la rentabilité des banques dans la zone CEMAC?; 2013.
Bain J. The relation of profit rate to industry concentration: American Manufacturing. Q J Econ, n°65. 1951;3:293-324.
Baumol WJ, Panzar JC, Willig RD. Contestable markets and the theory of industry structure. New York: Harcourt Brace Jovanovich Inc; 1982.
Demsetz H. Industry structure, market rivalry, and public policy. J Law Econ. 1973;16(1):1-9.
DOI: 10.1086/466752.
Hicks J. Capital and time. Oxford: Clarendon press; 1973.
Mishkin F, Bordes C, Hautcœur P-C, Lacoue-Labarthe D, Ragot X. Monnaie, banque et marchés financiers. Paris: Pearson 9e éd; 2010.
Salop SC. Monopolistic competition with outside goods. Bell J Econ. 1979;10(1):141-56.
DOI: 10.2307/3003323.
Schumpeter JA. Theorie der wirtschaftlichen Entwicklung. Vol. 9. Duncker & Humblot. 1912;10:205.
DOI: 10.3917/ecofi.129.0269.
Hugon P. Rentabilité du secteur bancaire et défaillances du développement: le cas de la CEMAC. Rev Tiers Monde. 2007;192:771-88.
COBAC. annual activity report; 2018.
Saidane D. Are our banks doing their jobs? Afr Banker, May; 2017.
Chauveau T, Saidane D. Le pouvoir des banques sur le marché du crédit: essai de comparaison internationale. Obs Diagn Econ. 1991;35(1):135-66.
DOI: 10.3406/ofce.1991.1237.
Mirzaei A, Moore T. What are the driving forces of bank competition across different income groups of countries? J Int Financ Markets Inst Money. 2014;32:38-71.
DOI: 10.1016/j.intfin.2014.05.003.
Saidane D, Abdallah B. Sustainability and financial stability: evidence from European banks. Econ Bull. 2020;40(2):1769-80.
Nguena CL. ’Financing SMEs in Cameroon in a context of financial crisis’ MPRA Paper. Germany: University Library of Munich; 2012.
Beck T, Cull R. Banking systems in Sub-Saharan Africa: a state of play. Rev econ financ. 2014;116.
Geoffron P. Analyses structurelles des industries bancaires et nouvelles concurrence financière. Rev econ financ. 1994;28(1):27-48.
DOI: 10.3406/ecofi.1994.2507.
Keynes JM. The general theory of employment, interest, and money. New York, Harcourt: Brace & Co; 1936.
Shaffer S. The winner’s curse in banking. J Financ Intermed. 1998;7(4):359-92.
DOI: 10.1006/jfin.1998.0251.
Gbongue F, Planchet F. Analyse comparative des modèles de construction d’une courbe des taux sans risque dans la zone CIPRES. Bull Fr d'actuariat,. 2015;15(30, Juillet-Décembre):129-68.
Leroy A. “Analysis of the effects of banking competition on stability and efficiency: a European perspective” [PhD thesis]. University of Orléans; 2016.
Klein MA. A theory of the banking firm. J Money Credit Banking. 1971;3(2).
DOI: 10.2307/1991279.
Monti M. ’Deposit, credit, and interest rate determination under alternative bank objectives’, in. Mathematical Methods in Investment and Finance. G.P; 1972.
Lerner AP. The concept of monopoly and the measurement of monopoly power. Rev Econ Stud. 1934;1(3):157-75.
DOI: 10.2307/2967480.
Berger AN, Klapper LF, Turk-ariss R. Bank competition and financial stability. J Financ Serv Res. 2009;35(2):99-118.
DOI: 10.1007/s10693-008-0050-7.
Markowitz H. Portfolio selection. J Fin. 1952;7(1):77-91. 33.
Diamond DW. Financial intermediation and delegated monitoring. Rev Econ Stud. 1984;51(3):393-414.
DOI: 10.2307/2297430.
Boyd JH, Prescott EC. Financial intermediary-coalitions. J Econ Theor. 1986;38(2):211-32.
DOI: 10.1016/0022-0531(86)90115-8.
Williamson SD. Costly monitoring, financial intermediation, and equilibrium credit rationing. J Monet Econ. 1986;18(2):159-79. DOI: 10.1016/0304-3932(86)90074-7.
Allen F. The market for information and the origin of financial intermediation. J Financ Intermed. 1990;1(1):3-30.
DOI: 10.1016/1042-9573(90)90006-2.
Stiglitz JE, Weiss A. Credit rationing in markets with imperfect information. Am Econ Rev. 1981;71(3):393-410.
Gale D, Vives X. Dollarization bailouts, and the stability of the banking system. Q J Econ. 2002;117(2):467-502.
DOI: 10.1162/003355302753650300.
Ahokpossi C. Determinants of bank interest margins in Sub-Saharan Africa, IMF Working paper n° 13/34. IMF Working Papers. 2013;13(34).
DOI: 10.5089/9781475551136.001.
Prao YS, Kamalan E. Bank concentration and interest Rate Margin in WAEMU zone. Int Econ J. 2019;33(3):493-508.
DOI: 10.1080/10168737.2019.1585903.
Jeon BN, Olivero MP, Wu J. Do foreign banks increase competition? Evidence from emerging Asian and Latin American banking markets. J Banking Fin. 2011;35(4):856-75.
DOI: 10.1016/j.jbankfin.2010.10.012.
Van hoose D. The Industrial Organization of Banking, Bank behavior, Market Structure and Regulation. Berlin, Heidelberg: Springer-Verlag; 2010.
Maudos J, Solís L. The determinants of net interest income in the Mexican banking system: an integrated model. J Banking Fin. 2009;33(10):1920-31.
DOI: 10.1016/j.jbankfin.2009.04.012.
Claeys S, Vander Vennet R. Determinants of bank interest margins in Central and Eastern Europe: A comparison with the west. Econ Syst. 2008;32(2):197-216.
DOI: 10.1016/j.ecosys.2007.04.001.
Leuvensteijn M, Sorensen CK, Bikker JA, Rixtel AARJM,. ’Impact of bank competition on the interest rate pass-through in the euro area’, Tjalling C Koopmans Research Institute Discussion Paper Series nr: 08-; 2008.
Demirgurc-Kunt A, Laeven L, Levine R. Regulations, market structure, institutions, and the cost of financial intermediation. J Money Credit Banking. 2004:593-622.
Mirzaei A, Moore T, Liu G. Do market structure matter on bank’s profitability and stability? Emerging vs advanced Economies. J Banking Fin. 2013;37(8):2920-37.
DOI: 10.1016/j.jbankfin.2013.04.031.
Smirlock M, Brown D. Collusion, efficiency, and pricing behavior: evidence from the banking industry. Econ Inq. 1986;24(1):85-96.
DOI: 10.1111/j.1465-7295.1986.tb01798.x.
Park KH. Has bank consolidation in Korea lessened competition? Q Rev Econ Fin. 2009;49(2):651-67.
DOI: 10.1016/j.qref.2008.02.003.
Staikouras CK, Koutsomanoli-Fillipaki A. Competition and concentration in the new European banking landscape. Eur Financ Manag. 2006;12(3):443-82.
DOI: 10.1111/j.1354-7798.2006.00327.x.
Bresnahan TF. The oligopoly solution concept is identified. Econ Lett. 1982;10(1-2):87-92.
DOI: 10.1016/0165-1765(82)90121-5.
Turk-Ariss R. Competitive behavior in Middle East and North Africa banking systems. Q Rev Econ Fin. 2009;49(2):693-710. DOI: 10.1016/j.qref.2008.03.002.
Beck T. Stock markets, banks and economic development: theory and evidence. EIB Pap. 2003;8:36-54.
Anginer D, Demirguc-Kunt A, Zhu M. How does competition affect bank systemic risk? J Financ Intermed. 2014;23(1):1-26. DOI: 10.1016/j.jfi.2013.11.001.
Beck T, De Jonghe O, Schepens G. Bank competition and stability: Cross-country heterogeneity. J Financ Intermed. 2013;22(2):218-44.
DOI: 10.1016/j.jfi.2012.07.001.
Al-Karasneh FM. Market Structure and performance in the GCC banking sector: evidence from Kuwait, Saudi Arabia, and UAE. Savings Dev. 2005;29(4):391-414.
Shaffer S. ’Comment on "What Drives Bank Competition? Some International Evidence’ by Claessens S and Laeven L. J Money Credit Banking. 2004;36(3):585-92.
Breusch TS, Pagan AR. A simple Test for Heteroscedasticity and Random Coefficient Variation. Econometrica. 1979;47(5):1287-94.
DOI: 10.2307/1911963.
Avom D, Eyeffa S. Quinze ans de restructuration bancaire dans la CEMAC: qu'avons-nous appris? Rev econ financ. 2007;89.
Avom D, Ongo B. Les marges d’intérêts contribuent-elles à la rentabilité des banques dans la zone CEMAC?; 2013.
Bain J. The relation of profit rate to industry concentration: American Manufacturing. Q J Econ, n°65. 1951;3:293-324.
Baumol WJ, Panzar JC, Willig RD. Contestable markets and the theory of industry structure. New York: Harcourt Brace Jovanovich Inc; 1982.
Demsetz H. Industry structure, market rivalry, and public policy. J Law Econ. 1973;16(1):1-9.
DOI: 10.1086/466752.
Hicks J. Capital and time. Oxford: Clarendon press; 1973.
Mishkin F, Bordes C, Hautcœur P-C, Lacoue-Labarthe D, Ragot X. Monnaie, banque et marchés financiers. Paris: Pearson 9e éd; 2010.
Salop SC. Monopolistic competition with outside goods. Bell J Econ. 1979;10(1):141-56.
DOI: 10.2307/3003323.
Schumpeter JA. Theorie der wirtschaftlichen Entwicklung. Vol. 9. Duncker & Humblot. 1912;10:205.
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