The relationship between profit and bank market structure continues to raise questions amongst both policy makers and researchers. While some evidence supports a positive relationship between market structure, competition and profitability, other evidence seems to support the fact that profitability and related market share result from efficiency. Moreover, extant literature on South Africa is conflicting and seems to contradict anecdotal evidence. While some studies point to a competitive environment despite concentration, others suggest that concentration in the banking sector is harmful. Prosecution of banks for uncompetitive behavior also casts doubt on the conclusion that the South African banking sector is competitive. This paper examines the relationship between structure and conduct in the South African banking sector. Using the Berger (1995) discriminating tests, the effect of industry concentration, market share and efficiency on three measures of profitability is estimated on a panel of 11 South African banks for data between 1994 and 2016. The results show that concentration affects conduct. The profit-structure relationship is dominantly explained by the structure conduct hypothesis and partly by the efficient scale hypothesis. These results suggest that policy which discourages concentration and promotes competition in the banking sector is socially beneficial.

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Financial sector development has been receiving a great amount of attention in literature over the years. The finance-growth nexus has been revisited several times with the desire to understand the link between the two as available empirical evidence often fails to explain what is observed in practice. Financial development and sophistication have, in more instances than one, failed to propel growth of economies, with the focus now leaning towards the role of the financial sector structure and competition in this relationship. Making use of cross-country data by applying robust panel data analysis techniques, an analysis of the paradox -the nexus between financial depth, competition and economic performance -was undertaken in the study. The findings have implications for both policy and future research.

While the importance of the banking sector on various fundamental economic variables is well-documented in the literature, little is known about the relationship between the bank market structure and access to finance for opaque firms, particularly in developing economies such as South Africa. Using ordered probit and logit models, we investigate the impact of bank market structure on small, micro and medium enterprises (SMMEs)access to finance. Our results show that high bank concentration increases the obstacle to accessing finance for SMMEs in South Africa, and the relationship is non-linear. Thus, to a greater extent, our study validates the market power hypothesis, which argues that low competition diminishes firms’ access to finance.