Testing for the structure-conduct-performance hypthesis in the context of the Gambia banks profitability

Recent findings showcasing the banking industry plays a pivotal role in any given economic development, which has ignited conversations about the growth and stability of banks within academic, policymaking, research, and economic circles. The study assesses two opposing hypotheses, the Structure-Conduct Performance Hypothesis and the Efficiency Structure Hypothesis in the banking industry of The Gambia. Six banks were used in the studies because of their long existence and availability of the data. Financial and income statements of each bank were used to compute the financial indicators ratios, which were requested from the Central Bank of the Gambia. Quarterly data was provided spanning from 2008q1 to 2022q4. Pre-estimation tests were conducted to analyze our data, including descriptive statistics, cross-sectional dependency, slope homogeneity, and unit root test. Pre-estimated tests enabled us to employ both static and dynamic models, comprising the Fixed Effect Model, Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS). Using two dependent variables, ROE and NIM; whereas Concentration ratio and Market Share are our main focus independent variables and a vector of control variables of EAR, LDR, BS, and banks type. The findings support the efficiency structure hypothesis, which demonstrates a positive and significant value across all models. On the other hand, there was no enough evidence to support the StructureConduct Performance Hypothesis during our study. Therefore, we conclude that there is no evidence of collusion in banking industry of The Gambia. Furthermore, all the control variables were found to be positive and significantly contributed to the bank performance. The study also found the dummy variable bank type to be significant. The conventional banks dominate the banking industry's market share in term of profitability, liquidity and capital adequacy; however, the Islamic bank demonstrated to be more efficiency and less risky than their counterpart. This study suggests that policymakers should focus on policies and strategies to promote efficiency and fair competition in the banking industry; and regulators should design policies that are tailored to fit each bank type operations and investment opportunities in the sector of The Gambia. Keywords: Concentration, Market share, Structure-Conduct-Performance and Efficiency Structure hypotheses.