Competition and profit persistence in the South African Banking Sector
Date
2019
Authors
Letlaka, Katiso
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Abstract
he objective of this paper is to determine the level of competition in the South African banking sector. This is achieved by answering two fundamental questions. Firstly, what is the level of competition in the South African banking sector? Secondly, is there profit persistence in this sector? We make use of panel data sourced from the Bankscope database. OLS, FE and GMMSYS are used for estimation. Competition measures are split into two streams, the structural and the non-structural approaches. We follow the non-structural approach and outline two methods under this approach, namely the Lerner Index and the Boone Indicator. The innovation in this paper is bourne out of estimating the persistence of profits in the South African banking sector and then comparing the results with the already existing models in the literature. The main finding is that the South African banking sector exhibits low levels of competition. The 2008 financial crisis does not alter the main findings in any fundamental way. This supports the call for reform and better regulation in the South African banking sector.
Description
A Research Report presented for the degree of Masters of Commerce in the School of Economic and Business Sciences, to the Faculty of Commerce, Law and Management University of the Witwatersrand, Johannesburg, 2019