Do banks in sub-Saharan Africa with market power benefits from monetary policy

Abstract

This paper assesses the competitive environments of SSA banks with the view of analysing whether banks with market power profit from monetary policy. It employs various specifications of Lerner index as a measure of market power for 264 banks across 24 SSA countries. Tightening of monetary policy, high credit risk, risk aversion, and the high labour cost contribute to the high spread of banks in SSA. The results also reveal that a spread among banks with market power is significantly more sensitive to the monetary policy changes. The overall results suggest that banks in Africa gain from monetary policy shocks.