The Determinants of Commercial Bank Profitability in Sub-Saharan Africa

Author/Editor:

Valentina Flamini ; Liliana B Schumacher ; Calvin A McDonald

Publication Date:

January 1, 2009

Electronic Access:

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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.

Series:

Working Paper No. 09/15

Subject:

English

Publication Date:

January 1, 2009

ISBN/ISSN:

9781451871623/1018-5941

Stock No:

WPIEA2009015

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

32

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