Abstract
This paper explores the relationship between bank competition and financial sector stability using 20052010 data for ten African countries. The study utilises a Generalized Method of Moments approach to regress bank stability indices Z-score, non-performing loans ratio and return on banks assets on bank competition indices Lerner-Index, Herfindahl-Hirschman Index total assets and Herfindahl-Hirschman Index total deposits. The findings show a robust positive relationship between market power and financial stability. This unequivocally suggests that there is a trade-off between bank competition and financial sector stability in these countries, as per the competition-fragility view.
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