Abstract
There has been a monotonic increase in research investigating the performance of commercial banks across the globe. This is a recognition that the banking industry has a significant contribution to the service sector and national output. This paper examined the existence of the structure-conduct performance (SCP) and efficient market hypotheses by employing an autoregressive distributed lag (ARDL) approach for a period between 1990 and 2020. The study revealed the existence of both paradigms due to strongly statistically positive and significant coefficients of bank concentration and the size of the banking sector using the computed composite profitability measure (CPM). The paper suggests various policy implications on internal and external determinants of commercial bank’s performance. Key words: Malawi, principal component analysis (PCA), total bank deposit, bank concentration ratio, STATA.
Highlights
This study seeks to determine commercial banks’ performance in Malawi
The structure-conduct performance (SCP)/collusion hypothesis in the Malawian banking sector only holds in the long run
The efficient market hypothesis in the Malawian banking sector only holds in the long run
Summary
Commercial banks make up the most significant part of the service sector of any economy. People can settle bills, buy goods, save money for future expenses. This helps to build social relationships among people and bring trust on financial issues while facilitating business activities. As an aftermath, existing literature hypes the role of primary economic activities as being crucial to the overall economic performance of Malawi. It is the service sector which is a major contributor to the country’s GDP at 55.61% in 2020. The fact that the significance of the banking sector is under researched in Malawi, signifies
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