Does Bank Concentration Increase Credit Risk-Taking Behaviour? Evidence from SADC

In this study, we assess whether banking system concentration is strongly linked to banks credit risk exposure. We use a sample of 138 commercial banks drawn from SADC countries between 1999 and 2005. The results exhibit no significant influence of concentration on four measures of credit risk-taking behavior using three different estimation methods. Furthermore, the study concludes that the SADC banking sector was relatively stable during the second phase of banking reforms. The research also identifies two categories of factors that impact on credit risk in the SADC banking system. The first category relates to bank specific factors mainly cost-to-income ratio (COIR) and prices for bank lending and deposit products. In general, we find that of the bank-specific factors NIM, COIR and prices for loans and deposits to be significantly related to credit risk-taking behaviour. The second category relates to the macro environment and the result identify inflation and credit demand as having a positive and significant influence on bank credit risk.