Bank Competition and Performance: The Case of Slovakia and the Czech Republic
Bank Competition and Performance: The Case of Slovakia and the Czech Republic

Summary/Abstract: We assess the relationship between competition and performance on a sample of banks in Slovakia and the Czech Republic over the 2005-2016 period. Results of the linear Granger causality test suggest that a higher degree of market power (measured by market share and Lerner index) is associated with the performance increase. We find strong causation running from market power to performance, whereas the opposite causality is very weak. Our nonlinear investigation shows that above a certain threshold, the higher market share of an individual bank is likely to exacerbate the individual-risk-taking behaviour, and could be detrimental to the performance of the banking sector.

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