Determinants of banking competition in Morocco and evaluation of the structural reforms

Afifa Hakam, Filali Adib Fatine, Firano Zakaria
2014 International Journal of Economic Policy in Emerging Economies  
The empirical results of this paper indicate that the degree of competition in the banking system is determined by several macroeconomic aggregates that describe the relevance of the policies implemented in financial Morocco. Thus, the result shows that there is a positive relationship between the index of competition and concentration there by verifies our theoretical perception. On another note, economic growth is negatively correlated with the competition, which unfortunately indicates that
more » ... hen there are sustained economic growth banks does not behave concurrently and try to retain their market share stimulated by a high concentration sector. This is also dependent on conditions in the credit market, which indicates that when the demand is constant, banks tend to have fewer competing behaviors. In addition, the development of positive market impact of competition which is consistent with liberal theory. Thus, the use of financial market intensifies competition between banks to produce services being able to attract more customers to compensate for those who chose the stock market. Finally, in the implementation of monetary policy, the indicator of interbank interest rate has a positive impact on competition. Determinants of Competition: Theoretical Aspects and Empirical Work The question of the determinants of banking competition was only marginally treated by the economic theory, because of complexity to identify the factors being able to influence the banking degree of competition. Also, financial liberalization, the paradigm dominating, was regarded as being the single mechanism which can help to found a capable competing banking system to produce positive externalities in favor of the economic agents. Positive Externalities of banking competition To have a competing banking system allows leading to an economic development supported by allowing an optimal allowance of the resources, an advantageous access to the finance departments and maintenance of financial stability. The existence of the banking system, as mechanism of intermediation thus makes it possible to facilitate the high financing of the investment plans with profitability and preserves the economic system of any skid which can put it in danger. Economic growth The banking environment exerts a big role and paramount in the financing of the economy through the distributed appropriations. Thus the increase in banking competition generates important macroeconomic profits which are the result of the reduction of the monopoly rents, and of the improvement of the efficiency in the banking environment which allow a reduction of the margins and costs banking and consequently a fall of interest rates and thus of the credit charges supporting the investment and stimulating growth. The increase in competition thus makes it possible to reduce interest rates significantly and to reduce the rates of profit of the firms to equalize it with the marginal costs. This is beneficial for the consumer and makes it possible to facilitate the circulation of capital. In fact, increased competition improves the effectiveness of the firms. According to the theory of "the quiet life" of the monopoly (Calm life theory, John Hicks), the capacity of monopoly reduces the motivation of the managers of undertaking required the maximum effort, this theory does not make consensus with the glance even economic markets because a monopoly which does not endeavor to reduce its costs to the minimum loses in profits. Consequently, the arrival of new competitors supports the incentives to be most effective possible by fear to disappear from the market. As in the majority of the sectors of the economy, the advantages of a competition in the financial sector resident in the profits of efficiency, the supply of products of better quality to the ultimate consumers, an addition of innovation, a fall of the prices and an improvement of international competitiveness. An intensification of competition makes it possible moreover efficient banks to enter on the market and to develop to with it, at the expense of the inefficient establishments. Also, an improvement of competition in the banking system supports the capable innovation to increase the effectiveness of the banking system and to present more opportunity for the economic agents. The innovation in terms of product allows inter alia increasing the quality of the services and reducing the costs of intermediation. Admittedly banking industry is different from other industries, but the channels of minimization of the production costs remain similar. Besanko and Thakor (1992) , in their theoretical work, showed that in the presence of heterogeneity of the banking products (differentiation innovation) the production costs of the services record falls significant and in parallel, the credit costs are registered with the rise, which makes it possible to improve allocative efficiency, because of the fall of the costs of capable capital to increase the banking credit recourse and to increase consequently the value added. For them, the more competitive banking systems lead to higher growth rates. In fact, when the barriers at the entry decrease, the wellbeing of the shareholders of the banks decreases whereas that of the depositors and the borrowers increases. Access to the financial services The principal interest of banking competition is to increase penetration rate financial, through an advantageous access to the finance departments. Competition encourages, indeed, the fall of the costs of financing and financial management and makes it possible to develop the produced quantities,
doi:10.1504/ijepee.2014.065249 fatcat:2kyns7ec5ngxldanpil4ked24y