Financial freedom, market power and bank margins in sub-Saharan Africa
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Date
2019-10-31
Journal Title
Journal ISSN
Volume Title
Publisher
Journal of Financial Regulation and Compliance
Abstract
Purpose – This paper examines the effect of financial (banking) freedom and market power on bank net
interest margins (NIM).
Design/methodology/approach – The study uses data from 11 sub-Saharan African countries over the
period, 2006-2012, and the system generalized method of moments to assess how financial freedom affects the
relationship betweenmarket power and bank NIM.
Findings – The authors find that both financial freedom and market power have positive relationships
with bank NIM. However, there is some indication that the impact of market power on bank margins is
sensitive to the level of financial freedom prevailing in an economy. It appears that as competition
intensifies, margins of banks in freer countries are likely to reduce faster than those in areas with more
restrictions.
Practical implications – Competition policies could be guided by the insight on how financial freedom
moderates the effect of market power on bank margins.
Originality/value – This study provides new empirical evidence on how the level of financial freedom
affects bankmargins and the market power-bank margins relationship.
Description
Research Article
Keywords
Competition, Market power, Banks, Financial freedom, Lerner, Net interest margins