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Determinants of Bank Interest Margins in Sub-Saharan Africa

Author: Mr.Calixte Ahokpossi

Publisher: International Monetary Fund

Published: 2013-01-31

Total Pages: 21

ISBN-13: 1475551134

Financial intermediation is low in sub-Saharan Africa (SSA) compared to other regions of the world. This paper examines the determinants of bank interest margins using a sample of 456 banks in 41 SSA countries. The results show that market concentration is positively associated with interest margins, but the impact depends on the level of efficiency of each bank. In particular, compared to inefficient banks, efficient ones increase their margins more in concentrated markets. This indicates that policies that promote competition and reduce market concentration would help lower interest margins in SSA. The results also show that bank-specific factors such as credit risk, liquidity risk, and bank equity are important determinants of interest margins. Finally, interest margins are sensitive to inflation, but not to economic growth or public or foreign ownership. There are regional differences within SSA regarding the level of interest margins even after controlling for other factors.

Benchmarking Banking Sector Efficiency Across Regional Blocks in Sub-Saharan Africa

Author: Mr.Francois Boutin-Dufresne

Publisher: International Monetary Fund

Published: 2013-02-26

Total Pages: 29

ISBN-13: 1475559666

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This paper examines the determinants of net interest margins in four regional blocks in Sub-Saharan Africa and one comparator block in the Eastern Caribbean. Using bank-level data, we find that countries with a high level of operating costs, a high ratio of equity to total assets and high treasury bill interest rates have higher net interest margins. Moreover, high operating costs are associated with low measures of institutional quality and a small size of bank operations. We find support for the view that market structure is also partly responsible for high net interest margins in Sub-Saharan Africa. If interpreted causally, high operating costs and a high ratio of equity to total assets and, indirectly, institutional factors such as the rule of law, are the most important factors in accounting for high interest margins in the East African Community, relative to other regions.

Nonperforming Loans in Sub-Saharan Africa

Author: Hippolyte Fofack

Publisher: World Bank Publications

Published: 2005

Total Pages: 36

ISBN-13: 0051110172

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"This paper investigates the leading causes of nonperforming loans during the economic and banking crises that affected a large number of countries in Sub-Saharan Africa in the 1990s. Empirical analysis shows a dramatic increase in these loans and extremely high credit risk, with significant differences between the CFA and non-CFA countries, and substantially higher financial costs for the latter sub-panel of countries. The results also highlight a strong causality between these loans and economic growth, real exchange rate appreciation, the real interest rate, net interest margins, and interbank loans consistent with the causality and econometric analysis, which reveal the significance of macroeconomic and microeconomic factors. The dramatic increase in these loans is largely driven by macroeconomic volatility and reflects the vulnerability of undiversified African economies, which remain heavily exposed to external shocks. Simulated results show that macroeconomic stability and economic growth are associated with a declining level of nonperforming loans; whereas adverse macroeconomic shocks coupled with higher cost of capital and lower interest margins are associated with a rising scope of nonperforming loans. These results are supported by long-term estimates of nonperforming loans derived from pseudo panel-based prediction models. "--World Bank web site.

Bank Efficiency in Sub-Saharan African Middle Income Countries

Author: Chuling Chen

Publisher: International Monetary Fund

Published: 2009-01-01

Total Pages: 34

ISBN-13: 1451871619

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We use bank level data to study the efficiency of banks in Sub-Saharan African middle-income countries and provide possible explanations for the difference in the efficiency levels of banks. We find that banks, on average, could save 20-30 percent of their total costs if they were operating efficiently, and that foreign banks are more efficient than public banks and domestic private banks. Among the factors that could affect the efficiency levels are macroeconomic stability, depth of financial development, the degree of market competition, strong legal rights and contract laws, and better governance, including political stability and government effectiveness. Our findings point to the importance of policies that aim to build stronger institutions, promote more competition, and improve governance.

Determinants of Bank Interest Margins in Sub-Saharan Africa

Author: Mr.Calixte Ahokpossi

Publisher: International Monetary Fund

Published: 2013-01-31

Total Pages: 21

ISBN-13: 1475551142

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Banking Efficiency and Financial Development in Sub-Saharan Africa

Author: Sandrine Kablan

Publisher: International Monetary Fund

Published: 2010-06-01

Total Pages: 27

ISBN-13: 1455201197

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This study assesses the determinants of banking system efficiency in sub-Saharan Africa (SSA) and asks what, besides the degree of efficiency, explains the low level of financial development in the region. It uses stochastic frontier analysis to measure efficiency and a generalized method of moments system to explain financial development. SSA banks are found to be generally cost-efficient, but nonperforming loans undermine efficiency, which suggests that improvement in the regulatory and credit environments should improve efficiency. The political and the economic environment have held back financial development in SSA.

The Determinants of Commercial Bank Profitability in Sub-Saharan Africa

Author: Valentina Flamini

Publisher: INTERNATIONAL MONETARY FUND

Published: 2009-01-01

Total Pages: 30

ISBN-13: 9781451871623

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Bank profits are high in Sub-Saharan Africa (SSA) compared to other regions. This paper uses a sample of 389 banks in 41 SSA countries to study the determinants of bank profitability. We find that apart from credit risk, higher returns on assets are associated with larger bank size, activity diversification, and private ownership. Bank returns are affected by macroeconomic variables, suggesting that macroeconomic policies that promote low inflation and stable output growth does boost credit expansion. The results also indicate moderate persistence in profitability. Causation in the Granger sense from returns on assets to capital occurs with a considerable lag, implying that high returns are not immediately retained in the form of equity increases. Thus, the paper gives some support to a policy of imposing higher capital requirements in the region in order to strengthen financial stability.

Determinants of Bank Interest Margins in Sub-Saharan Africa

Author: Mr. Calixte Ahokpossi

Publisher: INTERNATIONAL MONETARY FUND

Published: 2013-01-31

Total Pages: 0

ISBN-13: 9781557753335

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Resolving Nonperforming Loans in Sub-Saharan Africa in the Aftermath of the COVID-19 Crisis

Author: Luc Eyraud

Publisher: International Monetary Fund

Published: 2021-06-08

Total Pages: 85

ISBN-13: 1513576518

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Sub-Saharan African countries are facing an unprecedented health and economic crisis that is likely to severely hurt credit quality and raise non-performing loans from already high levels. Banks have a critical role to play not only during the crisis by providing temporarily relief to businesses and households, but also during the recovery by supporting economic activity and facilitating the structural transformations engaged by the pandemic.

Nonperforming Loans in Sub-Saharan Africa

Author: Hippolyte L. Fofack

Publisher:

Published: 2012

Total Pages:

ISBN-13:

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This paper investigates the leading causes of nonperforming loans during the economic and banking crises that affected a large number of countries in Sub-Saharan Africa in the 1990s. Empirical analysis shows a dramatic increase in these loans and extremely high credit risk, with significant differences between the CFA and non-CFA countries, and substantially higher financial costs for the latter sub-panel of countries. The results also highlight a strong causality between these loans and economic growth, real exchange rate appreciation, the real interest rate, net interest margins, and interbank loans consistent with the causality and econometric analysis, which reveal the significance of macroeconomic and microeconomic factors. The dramatic increase in these loans is largely driven by macroeconomic volatility and reflects the vulnerability of undiversified African economies, which remain heavily exposed to external shocks. Simulated results show that macroeconomic stability and economic growth are associated with a declining level of nonperforming loans; whereas adverse macroeconomic shocks coupled with higher cost of capital and lower interest margins are associated with a rising scope of nonperforming loans. These results are supported by long-term estimates of nonperforming loans derived from pseudo panel-based prediction models.