financial stability report - Banka Qendrore e RepublikÃ«s sÃ« KosovÃ«s

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Number 3 Financial Stability Report Table 1. Estimation results prov_loans H_stat Lagnonintinc_ta logta Lagequity_ta hhi_dep rgdpgrow th cpi Lagnim rule_law _w b <strong>financial</strong>_freedom_hrt resid_stage2 -0.099* 0.094** -0.414*** -0.033*** 0.001 -0.203*** -0.023 -0.105** 0.364 -0.046** 1.000*** Constant 10.878** Observations 1,816 R-squared 0.413 *** p
Financial Stability Report Number 3 on banks’ decisions, appears to have a significantly negative impact, implying that the lower the government inference the better will be the quality of banks loan portfolios. 8.5. Conclusion The theoretical and empirical literature on the relationship between banking sector competition and risk remains inconclusive with a strand of the literature arguing for a positive relationship and the other claiming that this relationship is negative. This article dealt with the empirical examination of the relationship between competition and risk-taking in the banking sectors of the Central and Eastern Europe transition economies, using bank-level data for the period 2002-2009. The estimation strategy consists of two stages, with the first stage estimating the competition measure (Panzar-Rosse H- statistic), and the second state estimating the impact of competition on loan-loss provisions. The main finding of this study is the negative relationship between banking sector competition and loan-loss provisions, implying that higher competition reduces the level of risk in the banking sector loan portfolio. This results hold while controlling also for other bank-specific, macroeconomic, and institutional indicators. In this respect, the results suggest that banks with larger assets, higher capital ratios and higher net interest margins tend to have lower level of risk in their loan portfolios, whereas banks with a higher degree of concentration on non-interest generating assets tend to have higher level of risk in their loan portfolios. The real GDP growth appears to have a significantly negative impact on loan-loss provisions, suggesting that the repayment ability of borrowers tends to improve when the overall economic activity in the country is increasing. The results suggest that <strong>financial</strong> freedom improves the quality of loan portfolio, implying that the lower the government’s inference on banks decisions the lower will be the level of risk in their portfolios. The impact of the market concentration index has resulted statistically insignificant. Moreover, the regression results show independent effects between the measure of competition and the market concentration index, thus providing support to the views claiming that competition and market concentration represent two different things. | 81
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financial stability report - Banka Qendrore e RepublikÃ«s sÃ« KosovÃ«s

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