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Corresponding Author:
Aktham Maghyereh, United Arab Emirates University

Bank Competition, Concentration and Risk-taking in the UAE Banking Industry

Volume 71 - Issue 2, May 2018
(pp. 129-148)
JEL classification: G18, G21, G32, G38
Keywords: Bank Competition, Bank Stability, Herfindahl–Hirschmann Index, UAE Banks

Abstract

This paper investigates the impact of competition and concentration on bank stability or risk-taking behavior in the UAE banking industry over the period 2006 to 2015. The Herfindahl–Hirschmann (HHI) index is used as an inverse measure of competition, while the nonperforming loans (NPL) ratio and Z-scores are used as proxies for bank risk-taking. The impact of competition is derived from a dynamic panel specification that accounts for bank-level factors (size, efficiency, liquidity, and capitalization). Using the two-step system Generalized Method of Moments (GMM) estimates, our empirical results suggest that the increase in competition erodes banks’ charter value and increases their tendency to assume additional risks with associated negative repercussions on financial stability. These results strongly support the competition-fragility hypothesis for UAE banks.


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Institute for International Economics
of the Genoa Chamber of Commerce


Istituto di Economia Internazionale
Camera di Commercio di Genova
Via Garibaldi, 4 (III piano) - 16124 Genova (Italy)
www.ge.camcom.gov.it