On September 8, 2021, Luc Matabaro Borauzima will publicly defend his thesis entitled:

"Efficiency, Risk and Competition in Banking: Essays from Africa" 

To register to the defense please contact: blmatabaro@doct.ulg.ac.be

Jury members 

• Prof. Julien Hambuckers (HEC Liège - University of Liège, President)
• Prof. Aline Muller (HEC Liège - University of Liège, Supervisor)
• Prof. Bart Frijns (Open University Maastricht)
• Prof. Albert Corhay (HEC Liège - University of Liège)
• Dr. Hugues Teuwa (University of Liège)
• Dr. Henry Ngongo Muganza (UEA, Evangelical University in Africa, Bukavu)

Summary

Over the last decades, the banking market has experienced various changes including the expansion of cross-border banks (CBBs) in developing banking markets. This expansion has raised questions related to CBBs’ effects on incumbent banking markets. Although the existing literature has explored a number of these questions, there is still a lack of or a limited evidence on how to account for efficiency heterogeneity among banks when CBBs establish and how they affect less competitive and inefficient developing banking markets. This thesis investigates how changes induced by CBBs’ expansion affect efficiency, risk-taking and competition in developing banking markets, by focusing on Africa where cross-border banking (CBB) has shown an unprecedented upward trend over the last two decades.

In the first part of this thesis, we account for efficiency heterogeneity among banks to examine how CBB affects the market structure and the performance in domestic markets. Using classical Cournot and Stackelberg oligopolies, we show that although more efficient outperform less efficient banks when competition increases, they alleviate the competition induced by CBB. Empirical results indicate that African CBBs are more advantageous to competition while non-African CBBs exhibit higher efficiency and mitigate the magnitude of competition. Moreover, a cross-country heterogeneity investigation suggests that the effects of CBBs are more significant in Sub-Saharan than in North African banking markets.

In the second part, we explore how competition induced by CBBs affects bank risk-taking and implicitly the probability of bank failure when banks are heterogenous in terms of cost efficiency. By the mean of the Vasiceck single factor model and by introducing efficiency in the bank’s payoff function, the study confirms the nonlinear nexus between competition and bank risk-taking. It shows that efficiency moderates the effect of competition on bank risk-taking. Empirical evidence from African banking unveils that although efficiency mitigates the effects of competition on bank risk-taking, banks have to achieve reasonable cost efficiency levels. Moreover, the study shows that the penetration of African CBBs does not increase risk-taking in incumbent markets.

Finally, based on a panel VAR analysis, this thesis examines the reverse causality between bank efficiency and market structure. It reveals that efficiency better predicts the market structure and that unlike cost and profit efficiency, a shock in technical efficiency negatively affects the bank market structure.