THE EFFECT OF BANKING COMPETITION ON FINANCIAL STABILITY IN CENTRAL AFRICAN ECONOMIC AND MONETARY COMMUNITY ZONE

Abstract

The study investigates the effect of banking competition on financial stability in Central African Economic and Monetary Community. Financial stability is measured by bank Z-score and nonperforming loans ratio. The Herfindahl Hirschman Index is used as a proxy of banking competition in both the loan and the deposit market. The study adopted the OLS, the Driscol/Kraay and the Newey-West Standard errors techniques. The results obtained in these techniques have provided a positive effect of banking competition on financial stability in the Central African Economic and Monetary Community zone. The findings of the study show that the banking sector in this region is more financially stable in competitive conditions than in highly concentrated conditions.

Keywords

• banking industry
• financial system
• non-performing loans ratio
• bank z-score