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Bank fragility in Africa: GMM dynamic panel data evidence

Kedir, Abbi M.; Iftikhar, Syed Faizan; Murinde, Victor; Dia Kamgnia, Bernadette

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Authors

Abbi M. Kedir

Syed Faizan Iftikhar

Bernadette Dia Kamgnia



Abstract

This study investigates the impact of bank-level and macroeconomic variables on bank fragility using a dynamic two-step GMM panel estimator on 433 banks in 46 African countries over the period 1997–2012. The study finds that both bank characteristics and macroeconomic variables are key drivers of bank fragility. The past experience of higher levels of non-performing loans (NPLs) significantly and positively determines current levels of NPLs. The growth of gross loan is negative and significant but economic growth leads to higher NPLs. The equity to assets ratio and the log of assets of banks are negatively associated with NPLs suggesting their potential to provide buffers to banks. Equally, total assets reduce bank fragility. These findings have important policy implications. The study shows that credit risk management initiatives, bank operation oversight and regulations should not be restricted in the times of financial crises, even during positive economic growth episodes in the business cycle.
JEL Classification: G01, G21, G28

Citation

Kedir, A. M., Iftikhar, S. F., Murinde, V., & Dia Kamgnia, B. (2018). Bank fragility in Africa: GMM dynamic panel data evidence. Transnational Corporations Review, 10(2), 170-178. https://doi.org/10.1080/19186444.2018.1475105

Journal Article Type Article
Acceptance Date May 1, 2018
Online Publication Date Jun 18, 2018
Publication Date Jun 18, 2018
Deposit Date Oct 15, 2018
Publicly Available Date Oct 15, 2018
Journal Transnational Corporations Review
Print ISSN 1918-6444
Electronic ISSN 1925-2099
Publisher Taylor and Francis Group
Peer Reviewed Peer Reviewed
Volume 10
Issue 2
Pages 170-178
DOI https://doi.org/10.1080/19186444.2018.1475105
Keywords Bank characteristics, macroeconomic variables, regulation, NPLs, GMM
Publisher URL https://doi.org/10.1080/19186444.2018.1475105

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