How does bank competition affect industrial growth and stability at different banking sector capitalization levels? Lessons from South Africa

This paper investigates how bank competition and regulatory capital affect output growth and stability, using data for 21 manufacturing industries in South Africa between 2005 and 2020. The analysis reveals that higher bank regulatory capital is associated with reduced output growth and increased output volatility, while greater bank competition leads to higher growth and lower volatility. Additionally, the study finds that the interaction between bank competition and regulatory capital positively influences both output growth and stability. Consequently, while increased bank competition boosts growth and reduces volatility, it also mitigates the negative effects of higher regulatory capital on these outcomes. This conclusion, consistent across various competition measures, and estimation methods, highlights the need to pair stringent bank capital requirements with a competitive banking environment to maximize benefits for the manufacturing sector.