Bank Stability and Competition: Evidence from Albanian Banking Market

Authors

  • Gerti SHIJAKU Bank of Albania

Keywords:

Bank stability, Competition, Boone indicator, Panel Data, GMM

Abstract

This paper analyses the inter-temporal competition – stability nexus after the global financial crises. For this reason, the empirical estimation approach follows a five – step procedure. First, we utilise quarterly macroeconomic and balance sheet and income statement data for 16 banks operating in the Albanian banking sector over the period 2008 – 2015. Second, we calculate a new composite index as a measure of bank stability conditions, which includes a wide set of information rather than focusing only on one aspect of risk. Then, we construct a proxy for bank competition such as the Boone indicator. Empirical estimations are based on the General Method of Moments approach. A set of robustness checks include also the use of other alternative proxy of competition such as the Lerner index and the efficientadjusted Lerner index, profit elasticity and the Herfindahl index. Empirical results strongly support the “competition – stability” view after the global financial crises - that higher degree of competition boosts further bank stability conditions. Results further indicate that greater concentration has also a negative impact on bank stability. Results imply also that bank stability is positively linked with macroeconomic conditions and capital ratio and inverse with operational efficiency. Finally, we do not find a non-linear relationship between competition and stability.

Published

31-05-2017

How to Cite

SHIJAKU, G. (2017). Bank Stability and Competition: Evidence from Albanian Banking Market. Eurasian Journal of Business and Economics, 10(19), 127-154. Retrieved from https://ejbe.org/index.php/EJBE/article/view/182

Issue

Section

Articles