Abstract

The objective of this study is to analyze the effect of competition on the cost and profit efficiency of banks in the Economic and Monetary Community of Central Africa (CEMAC), over the period 2003–2010. The analysis is done in two stages. First, the stochastic frontier approach (SFA) permits us to estimate the efficiency scores and the competition levels measured by the adjusted Lerner index. Second, the competition measures thus obtained, and a set of control variables are introduced into a panel model to explain the cost and profit efficiencies. The results show that competition has been favorable to the profit efficiency, but not to the cost efficiency. This is because the diversification and the debtors’ prime rates have evolved in the expected way. However, the creditors’ prime rate, bank loans, inflation and the Gross Domestic Product (GDP) have evolved in an unexpected way. We recommend promotion of growth and a better inflation control by the government. As to the banks, they will gain from greater diversification of their products.

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