The Determinants of Commercial Bank Profitability in Sub-Saharan Africa

By Valentina Flamini, Liliana B Schumacher, Calvin A McDonald

January 1, 2009

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Valentina Flamini, Liliana B Schumacher, and Calvin A McDonald. The Determinants of Commercial Bank Profitability in Sub-Saharan Africa, (USA: International Monetary Fund, 2009) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Bank soundness, Banking, Credit risk, Financial institutions, Financial regulation and supervision, Financial sector policy and analysis, Inflation, National accounts, Personal income, Prices, Stocks

Keywords: Activity diversification, Bank characteristic, Bank entry barrier, Bank performance, Bank profitability, Bank return, Bank risk, Bank soundness, Bank spread, Banks, Credit risk, Inflation, Macroeconomic risk factors, Market structure, Personal income, Proxy bank size, SSA bank, Stocks, Sub-Saharan Africa, WP

Publication Details

Pages:

32
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/015
Stock No:

WPIEA2009015
ISBN:

9781451871623
ISSN:

1018-5941

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