scholarly journals Banking stability determinants in Africa

2018 ◽  
Vol 14 (4) ◽  
pp. 462-483 ◽  
Author(s):  
Peterson K. Ozili
Keyword(s):  
Financial Development ◽  
Banking Sector ◽  
Institutional Quality ◽  
Political Stability ◽  
Financial Structure ◽  
Loan Loss ◽  
Content Type ◽  
Insolvency Risk ◽  
Banking Stability ◽  
The Impact

Purpose The purpose of this paper is to investigate the determinants of banking stability in Africa. Design/methodology/approach The authors present four measures of banking stability embedding banks’ loan loss coverage ratio, insolvency risk, asset quality ratio, and level of financial development, thereby allowing analysis of banking stability determinants from four complementary perspectives: protection for downside credit losses, distress arising from insolvency risk, non-performing loans, and financial development. The authors use the regression methodology to estimate the impact of financial structure, institutional, bank-level factors on bank stability. Findings The findings indicate that banking efficiency, foreign bank presence, banking concentration, size of banking sector, government effectiveness, political stability, regulatory quality, investor protection, corruption control and unemployment levels are significant determinant of banking stability in Africa and the significance of each determinant depends on the banking stability proxy employed and depends on the period of analysis: pre-crisis, during-crisis or post-crisis. Practical implications Banking supervisors in African countries should consider the role of financial structure and institutional quality for banking stability in the African region. Originality/value This study is the first to examine banking stability determinants in Africa that takes into account institutional quality and financial structure.

Impact of remittances on economic performance in consideration of institutional quality

2020 ◽  
Vol 47 (3) ◽  
pp. 479-507
Author(s):  
Surya Nepal ◽  
Sae Woon Park ◽  
Sunhae Lee
Keyword(s):  
Economic Growth ◽  
Developing Countries ◽  
South Asia ◽  
Central Asia ◽  
Financial Development ◽  
Economic Performance ◽  
Institutional Quality ◽  
Content Type ◽  
The Impact ◽  
Asian Developing Countries

PurposeThe purpose of this paper is to empirically assess the impact of remittances on the economic performance of the 16 Asian developing countries, taking account of their institutional qualities.Design/methodology/approachA panel of 16 Asian developing countries (Central Asia, South Asia, and ASEAN) over the period of 2002–2016 is employed in the analysis. To assess the impact of remittances on economic performance in consideration of institutional quality, OLS estimates as well as GMM are used.FindingsThe effect of remittances on economic growth is statistically significant. In addition, they also impact economic growth when they interact with institutional or financial development variables. For the long-run growth process of Central Asian, South Asian, and ASEAN countries, a sound and smooth institutional framework appears to be indispensable. Also, it was found that more fragile economies tend to achieve bigger growth than less fragile economies, as this kind of growth is triggered by more remittances flowing into fragile economies. However, the impact of remittances on growth does not depend on the level of ICT. FDI and financial development have positive impact on growth.Research limitations/implicationsThere are limitations to this research as well. Due to the unavailability of data, several countries had to be removed from this study. The cost of sending money might be an important variable for this study. However, the data on this variable from reliable sources are almost impossible to gather. Therefore, this variable is also not included in this research. The savings from remittances when intermediated through formal financial channels will, in fact, produce a positive allocation and distribution of resources that may eventually become an important source of growth. However, one precondition for larger and greater growth is that remittances need to be well and properly utilized by the financial sector. Therefore, quality institutions should be formed first, which can facilitate investment activities and make the flow of remittances more convenient.Originality/valueThis paper exclusively considers the case of Asian developing countries (Central Asia, South Asia, and ASEAN) to assess the impact of remittances on the economic performance of these countries, with special consideration of the interaction effects of remittances and institutional quality in these emerging Asian economies. The previous studies on the effect of remittances on growth do not conform to one concrete conclusion. This study is undertaken in a bid to get the best possible result on the impact of remittances on the growth of the selected countries, majority of which attract substantial chunk of remittances into their economies.

Institutional quality and foreign direct investment in Ghana

2020 ◽  
Vol 30 (1) ◽  
pp. 109-122 ◽  
Author(s):  
Ibrahim Nandom Yakubu
Keyword(s):  
Foreign Direct Investment ◽  
Direct Investment ◽  
Institutional Quality ◽  
Principal Component ◽  
Political Stability ◽  
Single Measure ◽  
Content Type ◽  
Distributed Lag ◽  
Long Run ◽  
The Impact

Purpose This paper aims to investigate the impact of institutional quality on foreign direct investment (FDI) in Ghana for the period 1985-2016. Design/methodology/approach The study uses the autoregressive distributed lag (ARDL) approach to examine the relationship between institutional quality along with other controlled variables and FDI. Findings Evidence from the ARDL framework establishes a positive significant effect of institutional quality on FDI irrespective of the time horizon. The results also reveal a significant impact of inflation on FDI in both short and long run, while GDP per capita growth and trade are significant determinants only in the short run. Practical implications The study recommends the instigation of effective policies and strategies that seek to strengthen the quality of institutions, as this provides a conducive investment climate to attract FDI. Specifically, policies that are focused on promoting transparent legal regimes, regulatory reforms, non-corrupt institutions and political stability should be the precedence of policymakers. Originality/value In addition to being a pioneering work on the impact of institutional quality on FDI in Ghana, the main contribution of the study lies in its application of the principal component analysis to generate a single measure of institutional quality based on a number of institutional factors.

Examining the relationship between bank stability and earnings quality in Islamic and conventional banks

2020 ◽  
Vol 13 (5) ◽  
pp. 803-826
Author(s):  
Youssef Riahi
Keyword(s):  
Earnings Quality ◽  
Gulf Cooperation Council ◽  
Net Income ◽  
Loan Loss ◽  
Bank Stability ◽  
Content Type ◽  
Banking Stability ◽  
Conventional Banks ◽  
The Impact ◽  
Practical Implications

Purpose The purpose of this paper is to investigate the effect of earnings quality on banking stability in Gulf Cooperation Council countries. First, the author isolates the discretionary loan loss provision (DLLP) to investigate the impact of total LLP, DLLP, discretionary accruals and a small positive variation in net income on bank stability. Second, the author investigates differences that may exist between Islamic banks (IBs) and conventional banks (CBs) in terms of the impact of DLLP on bank stability. Design/methodology/approach This research is based on unbalanced panel data for 39 IBs and 64 CBs in the six Gulf Cooperation Council countries over the 2000–2014 period. Findings The findings indicate that the extent of stability is negatively associated with the level of DLLP. This study also found significant differences between the two banking sectors in the effect of DLLP on bank stability. Practical implications This study has various practical implications. First, it provides insights for governments and regulators about introducing instruments like borrower restrictions and dynamic provisions to reduce LLP, because it negatively affects banking stability. Second, bankers should carefully assess the effects of their LLP strategies to overcome any negative effects. Third, the findings are also relevant to shareholders, investors and bank customers. More specifically, the results will help to improving their understanding of how LLP is not a financial strength and it is subject to managers’ opportunism that can lead to a financial instability. Finally, this study’s results encourage researchers to investigate an unexplored question, namely, the procyclicality of LLP and its determinants and effects. Originality/value To the best of the author’s knowledge, this is the first study to investigate differences that may exist between Islamic and CBs in terms of the impact of DLLP on bank stability.

IPO initial return in Pakistan: influence of country-level institutional quality

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Waqas Mehmood ◽  
Rasidah Mohd-Rashid ◽  
Abd Halim Ahmad ◽  
Ahmad Hakimi Tajuddin
Keyword(s):  
Stock Exchange ◽  
Significant Risk ◽  
Institutional Quality ◽  
Political Stability ◽  
Least Square ◽  
Cross Sectional ◽  
Content Type ◽  
Country Level ◽  
Initial Return ◽  
The Impact

PurposeThe present study investigated the influence of country-level institutional quality on IPO initial return using World Bank Governance indices.Design/methodology/approachThis study analysed 84 IPOs listed on Pakistan Stock Exchange between 2000 and 2017 using cross-sectional data. The impact of country-level institutional quality on IPO initial returns was examined using ordinary least square, robust least square, stepwise least square and quantile regression.FindingsEmpirically, the values of political stability, government effectiveness and regulatory quality were positively significant, whereas rule of law and control of corruption were negatively significant in explaining the intensity of IPO initial return. The results also show the presence of significant risk in the market. Hence, investors were compensated with higher initial returns for weak country-level institutional quality. The results also reveal that improving country-level institutional quality would improve the financial market transparency, thereby reducing IPO initial returns.Originality/valueNo studies have been conducted regarding the influence of country-level institutional quality on IPO initial return in Pakistan. This study is a pioneering study that seeks to give insights into the link between these variables in the context of Pakistan.

Financial liberalisation, financial development and financial crises in SADC countries

2020 ◽  
Vol 12 (4) ◽  
pp. 477-494 ◽  
Author(s):  
Clement Moyo ◽  
Pierre Le Roux
Keyword(s):  
Interest Rates ◽  
Financial Development ◽  
Financial Crises ◽  
Negative Relationship ◽  
Institutional Quality ◽  
Financial Reforms ◽  
Content Type ◽  
Financial Liberalisation ◽  
Using Data ◽  
The Impact

Purpose The impact of financial reforms and financial development on an economy has received considerable attention over the recent past. This paper aims to investigate whether financial liberalisation and financial development increase the likelihood financial crises in Southern African development community (SADC) countries. Design/methodology/approach Due to the binary nature of the dependent variable, the logit model is used for the analysis using data for the period 1990 to 2015. Findings The results showed that financial liberalisation captured by real interest rates reduces the likelihood of financial crises. Furthermore, regulatory quality strengthens this reductive effect of financial liberalisation on the probability of financial crises. On the other hand, financial development represented by bank credit increases the incidence of financial crises. The results also suggest that financial liberalisation may increase the likelihood of financial crises indirectly through financial development. Research limitations/implications The study recommends that a sound regulatory and supervisory framework be established as well as institutional quality raised to curb the effect of financial development on the incidence of financial crises. Originality/value There is scant evidence on the role that financial liberalisation and financial development play in the incidence of financial crises in the SADC. This study incorporates the effect of institutional quality in the analysis which has been neglected by most studies on financial reforms in SADC countries. A number of recent studies in SADC countries conclude that financial development resulting from financial reforms, may hinder economic growth. Therefore, this study sheds light on this negative relationship.

Capital requirements, institutional quality and credit crunch in the MENA region

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ali Awdeh ◽  
Chawki EL-Moussawi
Keyword(s):  
Institutional Environment ◽  
Institutional Quality ◽  
Political Stability ◽  
Bank Lending ◽  
Capital Requirements ◽  
Bank Credit ◽  
Credit Crunch ◽  
Mena Region ◽  
Content Type ◽  
The Impact

PurposeThe introduction of Basel capital adequacy standards (I, II and III) has provoked a large body of empirical and theoretical literature that aimed to detect the consequences of risk-based capital rules on bank lending behaviour and credit availability (and the possible emergence of the credit crunch phenomenon), and came up with divergent conclusions. This study aims at participating in this continuous debate but detecting the applicability of the credit crunch theory in the MENA region, taking into consideration the impact of the institutional environment, which may play a role in mitigating the supply-side credit crunch.Design/methodology/approachThis study exploits the Fixed Effects method on a dataset of 210 banks from 14 MENA countries over the period 1999–2016. The paper exploits the percentage change in bank credit as a dependent variable, capital requirements and three institutional quality variables as explanatory variables, in addition to a set of micro- and macro-economic variables.FindingsThe study finds that the implementation of higher capitalisation ratios does participate in a significant decline in bank credit supply. Additionally, by testing the impact of institutional factors on bank lending, it reveals that good governance and political stability encourage banks to extend credit and soften the credit crunch, while higher level of financial freedom discourages banks from expanding loan supply and even magnifies the decline of credit following tightening capital requirements.Practical implicationsThis paper provides very important insight for MENA policymakers and bank regulators by highlighting the importance of the institutional environment factors in amplifying or softening the effect of higher capital requirements in their economies.Originality/valueIn addition to examining an understudied sample of countries, this paper's originality and value added are represented mainly by testing the impact of institutional environment and governance level on bank lending behaviour.

scholarly journals Impact of financial development on bank profitability

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Peterson K. Ozili ◽  
Honour Ndah
Keyword(s):  
Financial Development ◽  
Banking Sector ◽  
Generalized Method Of Moments ◽  
Negative Relationship ◽  
Financial System ◽  
Bank Profitability ◽  
Content Type ◽  
Interest Income ◽  
The Impact ◽  
Asset Managers

PurposeThis paper investigates the effect of financial development on bank profitability. The authors examine whether financial development is an important determinant of bank profitability.Design/methodology/approachThe ordinary least square and the generalized method of moments regression methods were used to analyze the impact of financial development on the profitability of the Nigerian banking sector.FindingsThe authors find a significant negative relationship between the financial system deposits to GDP ratio and the non-interest income of Nigerian banks. This indicates that higher financial system deposits to GDP depresses the non-interest income of Nigerian banks. The result implies that the larger the size of the Nigerian financial system, the lower the profitability of banks in Nigeria. Also, the authors observe that bank concentration, nonperforming loans, cost efficiency and the level of inflation are significant determinants of the profitability of Nigerian banks.Practical implicationsIt is recommended that regulators should establish market-enabling policies that encourage new banks to emerge in the banking industry. The entry of new banks can lead to increase in financial system deposits and credit supply for economic growth. Regulators also need to understand the role of Nigerian banks in promoting financial development and find ways to collaborate with banks towards financial sector development. Another implication of the findings for asset managers is that asset managers will need to take into account the prevailing level of financial development, particularly the size of the financial system, in their asset pricing and investment decisions. This will ensure that investors get value for their investments in Nigeria. The financial implication of the study is that the level of financial development in Nigeria can improve the finance-growth linkages in Nigeria through the efficient allocation of credit and capital to crucial sectors of the Nigerian economy to spur growth in those sectors.Originality/valueEvidence dealing with how financial development affects the profitability of the banking sector in African countries is scarce in the literature, and is completely absent for Nigeria. This paper addresses this research gap.

Financial development and economic growth in SADC countries: a panel study

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Clement Moyo ◽  
Pierre Le Roux
Keyword(s):  
Economic Growth ◽  
Financial Development ◽  
Banking Sector ◽  
Global Financial Crisis ◽  
Panel Study ◽  
Content Type ◽  
Development Indicators ◽  
Banking Sector Development ◽  
The Individual ◽  
The Impact

PurposeThe impact of financial development on economic growth has received considerable attention since the 2008/2009 global financial crisis. High levels of credit to the private sector were partly to blame for the crisis, and this has re-ignited the debate on whether the growth-enhancing effects of financial development outweigh the retarding effects associated with financial crises. This paper therefore examines the financial development–growth nexus in SADC countries during the period 1990–2015.Design/methodology/approachThe empirical analysis is conducted using the pooled mean group estimator. Furthermore, financial development indices are created due to the strong correlations between the individual financial development indicators using principal component analysis.FindingsThe results show that financial development, captured by the indices or the individual financial development indicators, has a negative impact on economic growth in the long term.Research limitations/implicationsDue to the unavailability of data, the study only focussed on banking sector development. The researcher would have preferred to incorporate stock market development.Practical implicationsDue to financial vulnerabilities emanating from an inadequate monitoring and supervisory framework, further enhancement of financial development should be undertaken with caution in SADC countries. Therefore, institutional quality should be enhanced in order for SADC countries to benefit from the development of the financial sector.Originality/valueMost studies investigating the financial development–growth nexus in SADC countries utilise the individual measures of financial development which often produce contradicting results. This study constructs financial development indices to capture the impact of various banking sector development indicators on growth.

How to explain the liquidity risk by the dynamics of discretionary loan loss provisions and non-performing loans? The impact of the global crisis

2019 ◽  
Vol 45 (2) ◽  
pp. 244-262 ◽  
Author(s):  
Youssef Mohamed Riahi
Keyword(s):  
Financial Services ◽  
Banking Sector ◽  
Liquidity Risk ◽  
Loan Loss ◽  
Global Crisis ◽  
Content Type ◽  
Loan Loss Provisions ◽  
Significant Difference ◽  
The Impact ◽  
Practical Implications

PurposeThe purpose of this paper is to investigate the impact of discretionary loan loss provisions (DLLPs) and non-performing loans (NPLs) on the liquidity risk of both Islamic banks (IBs) and conventional banks (CBs) before and after the global crisis that hit nations belonging to the Gulf Cooperation Council (GCC).Design/methodology/approachThis empirical study uses balanced panel data on 16 IBs and 58 CBs operating in the six Gulf Cooperation states covering 2000–2014. The data were obtained from the Bankscope database and the banks’ annual reports.FindingsThe results indicate that NPLs affect liquidity risk differently across the banks – specifically, there is a significant difference in the funding and managing of liquidity between the two bank types. The authors find that the influence of DLLPs does not vary across the banks in the overall analysis and before the crisis. This finding provides insights into the unique nature of banking risks in dual banking systems. The authors also find that after the crisis, the discretionary LLPs affected liquidity risk differently across the banks.Practical implicationsThis study has several practical implications. First, the findings suggest that the Islamic Financial Services Board and other IBs regulators should reassess several regulations, principles and products in order to reduce their credit and liquidity risks. Second, the study emphasizes the need for banks to perform a careful assessment of the effects of their LLP policies. Finally, the findings are also relevant to bankers, as they provide empirical evidence on the effect of loan growth on bank liquidity, suggesting that bankers should improve their loan management.Originality/valueFirst, this is the first study to examine discretionary LLPs, NPLs and liquidity risk in IBs; it is also the first comparative study between Islamic and CBs. Second, the study provides evidence on how the global crisis impacted the banking sector and identifies some of the main determinants of liquidity risk for both Islamic and CBs operating in GCC countries.

Addressing the effect of workers’ remittance on economic growth: evidence from MENA countries

2015 ◽  
Vol 43 (1) ◽  
pp. 51-70 ◽  
Author(s):  
Hajer Kratou ◽  
Kaouthar Gazdar
Keyword(s):  
Economic Growth ◽  
Panel Data ◽  
Financial Development ◽  
Institutional Quality ◽  
Political Stability ◽  
Content Type ◽  
Mena Countries ◽  
Long Run ◽  
Short Run ◽  
Practical Implications

Purpose – The purpose of this paper is to study the effect of remittances on economic growth in MENA region. More precisely this study tries first to explore the short-run and the long-run relationship between remittances and economic growth. Second, the authors address how the local financial development and institutional environment influence a country’s capacity to take advantage from remittances. Design/methodology/approach – The panel data unit-root test as well as the panel data co-integration is used for the purpose of the long-run remittances growth relationship and the IV technique with GMM option is adopted to study the short-run link. Findings – This paper provides empirical evidence that remittances have a positive effect on economic growth in the long run and a negative effect in short run. The short-run effect of remittances on economic growth is conditional. In fact, it depends in the levels of financial development and institutional quality, respectively. Practical implications – As practical implications, policy interventions, to improve the functioning of governance institutions, enforcing regulation and political stability, enhancing financial system and socio-economic environment are also crucial for increasing the benefit effects of remittances. Originality/value – The research is an extension of previous evidence in two ways; the authors have examined the long-run and short-run remittances-growth relationship in the first time. In the second time, the authors have explored the conditional remittances-growth relationship in MENA countries. Specifically, the authors have examined whether the remittances-growth nexus is affected by financial development and institutional quality levels in MENA countries.

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