Assessing banking sector competition in Zimbabwe using a Panzar-Rosse Approach

20 April 2016
Publication Type: Working Paper
JEL Code: C14, D4, G21, O40

This paper assesses the level of competition in Zimbabwe’s banking sector using the Panzar-Rosse H-statistic. The H-Statistic has been assessed, using the total revenues regression equation, and applying the panel least square regression model with fixed effects. The H-statistics is estimated at 0.56, which result is confirmed, using bank random effects and the General methods of moments, yield similar results. The H-statics obtained from the two methods are 0.54 and 0.51 for the random effect and generalised methods of moments, respectively. The results confirm the presence of a monopolistic competition. On an annual basis, the results show that the Zimbabwean banking sector is evolving towards perfect competition. The increased competition was evident through aggressive promotions, increased marketing of banking products, and increased tenure of loans from one year to three years for individuals as banks tried to outclass each other. The study recommends that the government should desist from tampering with market forces as this reduces the amount of competition.

Series title: Working paper 599
1 April 2016
Journal: Journal of Economic and Financial Sciences
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