NEXUS BETWEEN BANK CONCENTRATION, COMPETITION AND FINANCIAL STABILITY

Abstract

This research investigates the complex link that exists between the concentration of banks, the level of competition, and the stability of the financial system in Nepal's banking industry. The study examines data from five commercial banks, focusing on factors such as market concentration, competition, bank size, profitability, GDP growth, inflation, and financial stability. The study's research techniques are a blend of descriptive and causal research designs. According to the data, a greater market concentration has a positive correlation with financial stability. This lends credence to the idea that bigger banks contribute to stability by using risk management strategies that are more conservative. However, while increased competition fosters efficiency and innovation, it also contributes to a decline in financial stability due to potentially riskier practices among banks. Higher competition inevitably leads to increased risk. According to the research findings, there is a pressing need for a regulatory strategy that strikes a healthy balance between fostering healthy competition and preserving adequate concentration to guarantee stability. In the process of navigating the ever changing dynamics of the financial system, these observations have substantial significance for the policymakers, regulators, and banking institutions in Nepal.