How can we reduce competition in the banking sector? Which will help increase financial stability. (Like MENA countries)
This is the role of the monetary authority and its tools in directing credit to the destination that achieves stability and serves economic development as well
The Banking sector should be very strong in order to reap the benefits of Financial Inclusion. In order to reduce the competition amongst various players in the sector, the Public Sector Banks may be amalgamated/merged as it happened in India.
Every business has competition track. It's not bout how to reduce but how to face it by using good strategies and innovation.
Reducing competition in the banking sector does not always have to correlate with increasing the financial stability of the banking system. For a correlation to exist between these variables, other factors must also be met. First of all, commercial banks should increase the level of financial reserves and should improve their credit risk management processes. On the other hand, the improvement of credit risk management may be motivated not only by the banking supervision institution but also by interbank competition. Thus, under certain conditions, an increase in interbank competition may motivate commercial banks to improve the processes of managing credit risk and other categories of financial risk, etc., and, consequently, also to raise financial security standards and financial stability.
Regards,
Dariusz Prokopowicz