Effect of Banking Concentration on Monetary Policy Transmission Mechanism in Cameroon

Abstract

The aim of this paper is to evaluate the effect of banking concentration on the monetary policy transmission mechanism in Cameroon. To conduct our study, we focus our attention on the bank lending channel. Using bank-level data of 6 commercial banks from 2006-2016 collected from National Credit Council, we estimate our model using the Dynamic Ordinary Least Square (DOLS) method. We find that, banking channel exist in Cameroon. Moreover, it appears that banking concentration weakens bank lending channel of monetary policy transmission in Cameroon. But, its impact is not significant. It also appears that banking concentration negatively and significantly affect credit supply in Cameroon. Therefore, we recommend to the Central Bank authority to reduce the amount of regulatory capital to a reasonable level in order to facilitate the entry of new banks into the sector. This should ultimately lead to the migration of concentrated structure to competitive structure more able to convey monetary policy decisions. Contribution/ Originality: This study contributes to the existing literature on monetary policy transmission mechanism in Cameroon by taking into account the effect of banking concentration on credit channel of monetary policy. 1. INTRODUCTION The financial system of the Economic Community of Central African States (CEMAC: Cameroon, Congo, Gabon, Equatorial Guinea, Central African Republic and Chad) is dominated by the banking system. This sector alone holds nearly 85% of financial assets and liabilities therefore, the bank lending channel seems to be the main channel of BEAC (Bank of Central African States) monetary policy transmission (Bikai & Kenkouo, 2015). However, the distribution of bank credit appears very concentrated in the various Central African countries. According to the 2012 COBAC (Central African Banking Commission) report, the value of the Herfindahl-Hirschmann index on the redeemable credits granted is higher than the threshold of 0.18, thus reflecting a high concentration of banks. For example, in Gabon, 65% and 45% of loans were granted by a single bank respectively in 2009 and 2010. In Equatorial Guinea, only one bank accounted for more than 60 % of loans granted in 2009. But the following year, a total of 76% credit was granted by two largest banks in Equatorial Guinea in 2010. In Cameroon two

The Bank Lending Channel in Dual Banking Systems: How Market Power Shapes Monetary Policy Effectiveness

“…Other studies, such as those by Karaku ş (2014), Jearviriyaboonya & Sethapramote (2019), Hussain & Bashir (2019), and Kamta et al (2020), align with these findings, offering evidence that rising concentration in the banking sector attenuates the bank lending channel, thereby making monetary policy less effective. This attenuation is particularly pronounced for smaller and less capitalized banks.…”

Blended Finance: A Tool for Inciting Commercial Financial Institutions to Provide Financing for Machinery Acquisition for SMEs in Cameroon

“…This goes in line with the position of Jung (2020) as well as Vikas, and Hari, (2023) who point out that blended finance is quite adaptable and can be adjusted to fit the local context. Though this is relatively recent, thus requiring further research, Widyastuti, et al (2023) Kamta et al, 2020). Given the results from the analysis as well as reports from the literature, it is safe to state that blended finance will significantly increase the willingness of financial institutions…”

“…Given the reported potential of the blended finance tool to mobilize private finance towards chosen sectors (Anago, Kamta et al, 2020), this research seeks to find out if the usage of this tool significantly impacts the wiliness of financial institutions to prove financing for SMEs in Cameroon. To achieve this purpose, data from 232 bank/ microfinance employees involved in loan processing was collected using a pretested questionnaire.…”

“…The level of acquisition of technology is considerably low in SMEs in Cameroon principally due to reduced access to financing (Intarakumnerd, 2016;Mallinguh et al, 2020;Subrahmanya, 2014), it is reported that formal financial institution in Cameroon has significant liquidity (Njimanted et al, 2017;Kamta et al, 2020). However, their inclination to lend to SMEs is quite reduced principally due to SMEs' lack of collateral security or guarantee (Agyemang, & Ansong, 2017; Akinboade, 2015; Ibrahim, & Ibrahim, 2015; St. Pierre, et al, 2015).…”

“…This does not include the informal sector of this economy which constitute the greater part of SMEs in Cameroon and whose population is not known. While SMEs in the Cameroonian economy struggle with reduced access to financing, it is reported that formal financial institutions in Cameroon have significant liquidity (Njimanted et al, 2017;Kamta et al, 2020). In that same light, Etogo (2020), argues that just like in most developing economies, SME access to formal financing in Cameroon is highly limited and this is having a significant impact on the performance of this category of businesses.…”