Dynamic of Banking Sector in Benin: Do More Competition Imply More Efficiency?

Abstract

This paper examines the dynamics of the financial system including banks and Decentralized Financial Systems (DFS) in Benin. While the reforms have produced the expected effect in terms of financial depth, compared to other developing countries, financial deepening is still weak-despite a remarkable contribution of DFS-with respect to the economy's mediumand long-term production or growth objectives. The result is an expansion of financial dualism with the financial micro intermediationdevelopment. Is the consequent financial architecture efficient in providing appropriate solutions to the economy's financing constraints? Concentration and competition are evaluated according to different indicators: the market shares of the first banks, the Lerner index and the H-statistics indicate a concentration structure with a low level of competition. If this has improved since 2010, they call for an analysis of the efficiency of the banking market in Benin. We apply then the Panzar and Rosse methodologyto account for technical inefficiencies in the banking system as a whole. The results confirm the absence of an explicit relationship between competition and efficiency; they also recommend a better organization of the Benin's financial system to meet the requirements of financial stability, economy financing, and financial inclusion.

The Impact of Banking Competition on Firm Credit Risk and Leverage

“…The first states that increased competition in the banking industry will prompt banks to provide firms with more credit at lower interest rates. By establishing a spatial competition model for loans, Babatoundé (2020) demonstrated that competition can lead to a decline in loan interest rates and a rise in deposit interest rates. Bustos et al (2020) found that bank monopolies are more likely to lead to credit rationing and lower capital accumulation rates than competitive markets.…”