Competition and Risk-Taking Behavior of Commercial Banks: Evidence from Bangladesh

[vc_row][vc_column width=”1/4″][vc_single_image image=”11831″ img_size=”684×1000″ css=””][/vc_column][vc_column width=”3/4″ css=”.vc_custom_1735142925573{padding-top: 0px !important;padding-right: 30px !important;padding-bottom: 30px !important;padding-left: 30px !important;background-color: #f6f6f6 !important;border-radius: 10px !important;}”][thim-heading title=”Competition and Risk-Taking Behavior of Commercial Banks: Evidence from Bangladesh” title_uppercase=”” textcolor=”#0A2540″ size=”h2″ title_custom=”custom” font_size=”24″ font_weight=”700″ font_style=”normal” clone_title=”” line=””][vc_row_inner][vc_column_inner width=”1/2″ css=”.vc_custom_1735142907053{border-right-width: 1px !important;border-right-style: solid !important;border-radius: 1px !important;border-color: #0A2540 !important;}”][vc_column_text css=””]Muhammad Saifuddin Khan (corresponding author)
Department of Finance, University of Dhaka
Email: saifuddin@du.ac.bd

Hashibul Hassan
Department of Finance, Jagannath University, Dhaka
Email: hashibulhassan@fin.jnu.ac.bd[/vc_column_text][/vc_column_inner][vc_column_inner width=”1/2″][vc_column_text css=””]Journal of Banking & Financial Services
Volume 16 Number 1 (June) 2024
DOI : https://www.doi.org/10.57143/JBFS.V16N1A2 
Published online: 25 December, 2024
Published in Print: 09 January, 2025[/vc_column_text][/vc_column_inner][/vc_row_inner][vc_column_text css=””]

Abstract

This study evaluates the role of competition on the propensity to take risks in the case of Bangladeshi commercial banks. We have used yearly data from 2009 to 2022 for a sample of 29 publicly traded banks. The Lerner Index was used to measure market power or competition, whilst Risk-Weighted Assets (RWA) and Loan Loss Provision (LLP) were used as indicators to evaluate the risk-taking propensities of the banks. We have used fixed effects, random effects, and feasible generalized least square regressions to examine the correlation between competitiveness and risk-taking behavior. A robust and statistically significant association is observed between the Lerner Index and Risk-Weighted Assets irrespective of the consideration of macroeconomic variables. A similar trend between Lerner index and Loan Loss Provisions is also evident. The results indicate that an increase in market dominance or a decrease in market competition leads to a higher allocation of high-risk investments and reserves for probable loan defaults.

[/vc_column_text][vc_column_text css=””]Keywords:
Lerner Index; Risk-Weighted Assets (RWA); Bank Competition; Loan Loss Provision (LLP); Bangladesh.[/vc_column_text][vc_btn title=”View Full Articles” style=”gradient” align=”left” css=”” link=”url:https%3A%2F%2Fbanins.du.ac.bd%2Fwp-content%2Fuploads%2F2024%2F12%2F2-converted.pdf|target:_blank”][/vc_column][/vc_row]