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Bank Efficiency and Competition in Low-Income Countries

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Author Info

  • David Hauner
  • Shanaka J. Peiris

Abstract

There is a concern that the state-dominated, inefficient, and fragile banking systems in many low-income countries, especially in sub-Saharan Africa, are a major hindrance to economic growth. This paper systematically analyzes the impact of the far-reaching banking sector reforms undertaken in Uganda to improve competition and efficiency. Using models that have been previously used only in industrial countries, we find that the level of competition has increased significantly and has been associated with a rise in efficiency. Moreover, on average, larger banks and foreign-owned banks have become more efficient, while smaller banks have become less efficient in the face of increased competitive pressures.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/240.

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Length: 31
Date of creation: 01 Dec 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/240

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Related research

Keywords: Banks; Data analysis; Economic models; banking; competition; banking system; banking sector; banking systems; degree of competition; perfect competition; monopoly; merger; mergers; banking industry; deposit insurance; monopolistic competition; banks ? balance sheets; monopolistic market; banking supervision; bank accounts; bank charter; deposit insurance premium; banking sector developments; bank competition; check clearing; imperfect competition; interest expense; bank size; banking market; banks ? asset; bank policy; banks with assets; return on assets; insurance premium; bank branches; bank credit; bank conduct; banking industries; loan classification; banking sector reforms; bank failures; demonstration effect;

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References

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  1. David Hauner, 2004. "Explaining Efficiency Differences Among Large German and Austrian Banks," IMF Working Papers 04/140, International Monetary Fund.
  2. Allen N. Berger & David B. Humphrey, 1997. "Efficiency of financial institutions: international survey and directions for future research," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 1997-11, Board of Governors of the Federal Reserve System (U.S.).
  3. Gaston Gelos & Jorge Roldos, 2002. "Consolidation and Market Structure in Emerging Market Banking Systems," IMF Working Papers 02/186, International Monetary Fund.
  4. Claessens, Stijn & Laeven, Luc, 2003. "What drives bank competition? some international evidence," Policy Research Working Paper Series 3113, The World Bank.
  5. Seiford, Lawrence M. & Thrall, Robert M., 1990. "Recent developments in DEA : The mathematical programming approach to frontier analysis," Journal of Econometrics, Elsevier, Elsevier, vol. 46(1-2), pages 7-38.
  6. Agnes Belaisch, 2003. "Do Brazilian Banks Compete?," IMF Working Papers 03/113, International Monetary Fund.
  7. Eduardo Levy Yeyati & Alejandro Micco, 2003. "Concentration and Foreign Penetration in Latin American Banking Sectors: Impact on Competition and Risk," IDB Publications 6514, Inter-American Development Bank.
  8. Johan Mathisen & Thierry D. Buchs, 2005. "Competition and Efficiency in Banking," IMF Working Papers 05/17, International Monetary Fund.
  9. Françoise Le Gall & Roland Daumont & François Leroux, 2004. "Banking in Sub-Saharan Africa," IMF Working Papers 04/55, International Monetary Fund.
  10. Panzar, John C & Rosse, James N, 1987. "Testing for "Monopoly" Equilibrium," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 35(4), pages 443-56, June.
  11. Molyneux, Phil & Lloyd-Williams, D. M. & Thornton, John, 1994. "Competitive conditions in european banking," Journal of Banking & Finance, Elsevier, Elsevier, vol. 18(3), pages 445-459, May.
  12. Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization, Elsevier, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057 Elsevier.
  13. Sealey, Calvin W, Jr & Lindley, James T, 1977. "Inputs, Outputs, and a Theory of Production and Cost at Depository Financial Institutions," Journal of Finance, American Finance Association, American Finance Association, vol. 32(4), pages 1251-66, September.
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Citations

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Cited by:
  1. Turk-Ariss, Rima, 2009. "Competitive behavior in Middle East and North Africa banking systems," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 49(2), pages 693-710, May.
  2. Jérôme Vacher & Samer Y. Saab, 2007. "Banking Sector Integration and Competition in CEMAC," IMF Working Papers 07/3, International Monetary Fund.
  3. Sami Mensi, 2010. "Measurement of Competitiveness Degree in Tunisian Deposit Banks: An Application of the Panzar and Rosse Model," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 57(2), pages 189-207, June.
  4. Beck, Thorsten & Feyen, Erik & Ize, Alain & Moizeszowicz, Florencia, 2008. "Benchmarking financial development," Policy Research Working Paper Series 4638, The World Bank.
  5. Bana Abuzayed & Nedal Al-Fayoumi & Hisham Gharaibeh, 2012. "Competition in MENA countries banking markets," International Journal of Financial Services Management, Inderscience Enterprises Ltd, Inderscience Enterprises Ltd, vol. 5(3), pages 272-301.
  6. Bernardo Maggi & Marco Guida, 2009. "Modeling non performing loans probability in the commercial banking system: efficiency and effectiveness related to credit risk in Italy," Working Papers - Dipartimento di Economia, Dipartimento di Economia, Sapienza University of Rome 1, Dipartimento di Economia, Sapienza University of Rome, revised 2009.
  7. Bernardo Maggi & Marco Guida, 2011. "Modelling non-performing loans probability in the commercial banking system: efficiency and effectiveness related to credit risk in Italy," Empirical Economics, Springer, Springer, vol. 41(2), pages 269-291, October.

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