Capital, risk and efficiency tradeoffs in Cameroonian banking

This paper analyzes the relationship between capital, risk and efficiency for a sample of 10 Cameroonian banks between 2014 and 2020. To reach the authors’ target, they specify a system of equations and estimate it using the two stage least squares panel data estimator technique. The empirical analysis shows that increases of bank capital do not reduce risk taking in Cameroonian commercial banks. Moreover, cost efficiency does not explain risk taking in the Cameroonian commercial banks. There is however a negative impact of change in risk taking on the bank cost efficiency. Finally, changes in bank capital contribute positively to the yearly change in bank efficiency.  Hence, policies aiming at ensuring that bankers are not tempted to play by the rules or inducing commercial banks behavior towards injection of more capital might help to improve bank efficiency and stability in this country.   Key words: Financial reforms in banking, bank capital, risk, efficiency, Cameroonian banks.