The ramification of competition and concentration on bank risk-taking behavior and stability: corroboration from South Asian Association for Regional Cooperation

Abstract

PurposeThe study investigates the impact of competition and concentration on bank risk-taking behavior and stability in the South Asian Association for Regional Cooperation (SAARC) region.Design/methodology/approachData from 100 banks from 2013 to 2021 was analyzed using dynamic and static measures by using dynamic system GMM.FindingsResults showed that higher competition reduces stability, while concentration in the banking sector produces stability and reduces risk-taking behavior. The findings suggest that regulatory agencies should take different actions based on the degree of banking market concentration to enhance banking sector stability in the SAARC area.Practical implicationsThe research helps regulators and decision-makers establish capital requirements at levels that would prevent banks from increasing their risk-taking in order to boost profits and, therefore, reduces hazardous practices that might increase the risk.Originality/valueThe research helps establish capital requirements to prevent banks from increasing risk-taking to boost profits and avoid hazardous practices that could increase nonperforming loans and bank failure risks.