Long-run Effects of Market Risk Factors on Bank Performance in the SSA Banking System
Keywords:
Bank, Performance, Risk, Loans, Africa
Abstract
The study assesses the long-term effects of market risk factors on bank performance in the Sub-Saharan Africa banking system. The article identifies the most influential market risk factor and the most affected bank performance factors in the long term. It covers 40 countries with 350 commercial banks for ten years. The analysis uses dynamic fixed-effects models (ARDL-DFE). The results demonstrated that non-performing loans are the most influencers affecting bank performance factors in the long run. Furthermore, the results show that return on average assets is the most bank performance factor affected mainly by market risks, especially the NPLs in the long run. Finally, the findings surprisingly proved mutual interactions and cointegration movements among bank market risk factors and bank performance measures in the long run. These findings can assist central banks in supervising and regulating SSA commercial banks and inspire regional bank managers in reducing market risks and sharpening long-run performance strategies through resource reallocating.
Downloads
Download data is not yet available.
Metrics
Metrics Loading ...
PlumX Statistics
References
1. Amador, J. S., Gómez-González, J. E., & Pabón, A. M. (2013). Loan growth and bank risk: new evidence. Financial Markets and Portfolio Management, 27(4), 365–379.
2. Beck, T., Demirgüç-Kunt, A., & Martinez Peria, M. S. (2008). Bank financing for SMEs around the world: Drivers, obstacles, business models, and lending practices. World Bank Policy Research Working Paper, 4785.
3. Belkhir, M., Grira, J., Hassan, M. K., & Soumaré, I. (2019). Islamic banks and political risk: International evidence. The Quarterly Review of Economics and Finance, 74, 39–55.
4. Bismark, O.-T. (2021). Non-Performing Loans and Bank’s Profitability: Empirical Evidence from Ghana. Ritsumeikan Asia Pacific University.
5. Chimkono, E. E., Muturi, W., & Njeru, A. (2016). Effect of non-performing loans and other factors on performance of commercial banks in Malawi. International Journal of Economics, Commerce and Management, 4(2), 549–563.
6. Dang, V. (2019). The effects of loan growth on bank performance: Evidence from Vietnam. Management Science Letters, 9(6), 899–910.
7. Dicevska, S., Karadjova, V., & Jolevski, L. (2018). The impact of non-performing loans on households on the financial performance of banks in macedonia1.
8. Du Toit, A., & Neves, D. (2007). In search of South Africa’s second economy: Chronic poverty, economic marginalisation and adverse incorporation in Mt. Frere and Khayelitsha. Frere and Khayelitsha (November 2007). Chronic Poverty Research Centre Working Paper, 102.
9. Eichengreen, B., Mody, A., Nedeljkovic, M., & Sarno, L. (2012). How the subprime crisis went global: Evidence from bank credit default swap spreads. Journal of International Money and Finance, 31(5), 1299–1318.
10. Etale, L. M., Ayunku, P. E., & Etale, E. (2016). The impact of non-performing loans and bank performance in Nigeria. International Journal of Humanities and Social Science Invention, 5(4), 1–5.
11. Fahlenbrach, R., Prilmeier, R., & Stulz, R. M. (2018). Why does fast loan growth predict poor performance for banks? The Review of Financial Studies, 31(3), 1014–1063.
12. Fassin, Y., & Gosselin, D. (2011). The collapse of a European bank in the financial crisis: An analysis from stakeholder and ethical perspectives. Journal of Business Ethics, 102(2), 169–191.
13. Fofack, H., & Fofack, H. L. (2005). Non-performing loans in Sub-Saharan Africa: causal analysis and macroeconomic implications (Vol. 3769). World Bank Publications.
14. Foos, D., Norden, L., & Weber, M. (2010). Loan growth and riskiness of banks. Journal of Banking & Finance, 34(12), 2929–2940.
15. Ghosh, A. (2015). Banking-industry specific and regional economic determinants of non-performing loans: Evidence from US states. Journal of Financial Stability, 20, 93–104.
16. Greuning, H. van, & Bratanovic, S. B. (2009). Analysing banking risk.
17. Gyamerah, I. A., & Amoah, B. (2015). Determinants of bank profitability in Ghana. International Journal of Accounting and Financial Reporting, 5(1), 173–187.
18. Harris, R. D. F., & Tzavalis, E. (1999). Inference for unit roots in dynamic panels where the time dimension is fixed. Journal of Econometrics, 91(2), 201–226.
19. Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115(1), 53–74.
20. Isa, M. Y. M., Choong, Y. V., Fie, D. Y. G., & Rashid, M. Z. H. A. (2018). Determinants of loan loss provisions of commercial banks in Malaysia. Journal of Financial Reporting and Accounting.
21. Ivashina, V., & Scharfstein, D. (2010). Bank lending during the financial crisis of 2008. Journal of Financial Economics, 97(3), 319–338.
22. Johnson, M. A., & Mamun, A. (2012). The failure of Lehman Brothers and its impact on other financial institutions. Applied Financial Economics, 22(5), 375–385.
23. Jolevski, L. (2017). Non-Performing Loans and Profitability Indicators: The Case of the Republic of Macednia. Journal Оf Contemporary Economic Аnd Business Issues, 4(2), 5–20.
24. Khemraj, T., & Pasha, S. (2009). The determinants of non-performing loans: an econometric case study of Guyana.
25. Klein, P.-O., & Weill, L. (2018). Bank profitability and economic growth.
26. Lane, P. R., & Milesi-Ferretti, G. M. (2011). The cross-country incidence of the global crisis. IMF Economic Review, 59(1), 77–110.
27. Levin, A., Lin, C.-F., & Chu, C.-S. J. (2002). Unit root tests in panel data: asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1–24.
28. Mpofu, T. R., & Nikolaidou, E. (2018). Determinants of credit risk in the banking system in Sub-Saharan Africa. Review of Development Finance, 8(2), 141–153.
29. Murphy, A. (2008). An analysis of the financial crisis of 2008: causes and solutions. An Analysis of the Financial Crisis Of.
30. Nguyen, H., & Qian, R. (2014). Demand collapse or credit crunch to firms? Evidence from the World Bank’s financial crisis survey in Eastern Europe. Journal of International Money and Finance, 47, 125–144.
31. Niu, J. (2016). Loan growth and bank valuations. The Quarterly Review of Economics and Finance, 61, 185–191.
32. Nizaeva, M., & Coşkun, A. (2018). Determinants of the financing obstacles faced by SMEs: An empirical study of emerging economies. Journal of Economic and Social Studies, 7(2), 81.
33. Önder, Z., & Özyıldırım, S. (2013). Role of bank credit on local growth: Do politics and crisis matter? Journal of Financial Stability, 9(1), 13–25.
34. Owoputi, J. A., Olawale, F. K., & Adeyefa, F. A. (2014). Bank specific, industry specific and macroeconomic determinants of bank profitability in Nigeria. European Scientific Journal, 10(25).
35. Pearson, K. (1901). LIII. On lines and planes of closest fit to systems of points in space. The London, Edinburgh, and Dublin Philosophical Magazine and Journal of Science, 2(11), 559–572.
36. Pesaran, H. H., & Shin, Y. (1998). Generalised impulse response analysis in linear multivariate models. Economics Letters, 58(1), 17–29.
37. Pesaran, M. H., Shin, Y., & Smith, R. P. (1999). Pooled mean group estimation of dynamic heterogeneous panels. Journal of the American Statistical Association, 94(446), 621–634.
38. Pesaran, M. H., & Smith, R. (1995). Estimating long-run relationships from dynamic heterogeneous panels. Journal of Econometrics, 68(1), 79–113.
39. Rachman, R. A., Kadarusman, Y. B., Anggriono, K., & Setiadi, R. (2018). Bank-specific factors affecting non-performing loans in developing countries: Case study of Indonesia. The Journal of Asian Finance, Economics, and Business, 5(2), 35–42.
40. Rahman, M. M., Hamid, M. K., & Khan, M. A. M. (2015). Determinants of bank profitability: Empirical evidence from Bangladesh. International Journal of Business and Management, 10(8), 135.
41. Saba, I., Kouser, R., & Azeem, M. (2012). Determinants of non-performing loans: Case of US banking sector. The Romanian Economic Journal, 44(6), 125–136.
42. Saurina, J. (2009). Loan loss provisions in Spain. A working macroprudential tool. Revista de Estabilidad Financiera, 17, 11–26.
43. Sawe, S. C. (2011). Determinants of Commercial banks profitability in Kenya. University of Nairobi, Kenya.
44. Simpson, J. (2007). Expert political risk opinions and banking system returns: A revised banking market model.
45. Škarica, B. (2014). Determinants of non-performing loans in Central and Eastern European countries. Financial Theory and Practice, 38(1), 37–59.
46. Tan, M. T. B. P. (2012). Determinants of credit growth and interest margins in the Philippines and Asia. International Monetary Fund.
47. Tehulu, T. A., & Olana, D. R. (2014). Bank-specific determinants of credit risk: Empirical evidence from Ethiopian banks. Research Journal of Finance and Accounting, 5(7), 80–85.
48. ul Mustafa, A. R., Ansari, R. H., & Younis, M. U. (2012). Does the loan loss provision affect the banking profitability in case of Pakistan? Asian Economic and Financial Review, 2(7), 772.
49. Valentseva, N. I. (2017). The scope of traditional activities of commercial banks. Finance: Theory and Practice, 21(2), 51–54.
50. Vithessonthi, C. (2016). Deflation, bank credit growth, and non-performing loans: Evidence from Japan. International Review of Financial Analysis, 45, 295–305.
51. Wang, Y. (2016). What are the biggest obstacles to growth of SMEs in developing countries?–An empirical evidence from an enterprise survey. Borsa Istanbul Review, 16(3), 167–176.
52. Wang, Z., Xie, N., & Jin, Y. (2019). Do loan loss provisions affect the credit fluctuations in China’s banking system? Emerging Markets Finance and Trade, 55(11), 2425–2436.
53. Weber, O. (2012). Environmental credit risk management in banks and financial service institutions. Business Strategy and the Environment, 21(4), 248–263.
2. Beck, T., Demirgüç-Kunt, A., & Martinez Peria, M. S. (2008). Bank financing for SMEs around the world: Drivers, obstacles, business models, and lending practices. World Bank Policy Research Working Paper, 4785.
3. Belkhir, M., Grira, J., Hassan, M. K., & Soumaré, I. (2019). Islamic banks and political risk: International evidence. The Quarterly Review of Economics and Finance, 74, 39–55.
4. Bismark, O.-T. (2021). Non-Performing Loans and Bank’s Profitability: Empirical Evidence from Ghana. Ritsumeikan Asia Pacific University.
5. Chimkono, E. E., Muturi, W., & Njeru, A. (2016). Effect of non-performing loans and other factors on performance of commercial banks in Malawi. International Journal of Economics, Commerce and Management, 4(2), 549–563.
6. Dang, V. (2019). The effects of loan growth on bank performance: Evidence from Vietnam. Management Science Letters, 9(6), 899–910.
7. Dicevska, S., Karadjova, V., & Jolevski, L. (2018). The impact of non-performing loans on households on the financial performance of banks in macedonia1.
8. Du Toit, A., & Neves, D. (2007). In search of South Africa’s second economy: Chronic poverty, economic marginalisation and adverse incorporation in Mt. Frere and Khayelitsha. Frere and Khayelitsha (November 2007). Chronic Poverty Research Centre Working Paper, 102.
9. Eichengreen, B., Mody, A., Nedeljkovic, M., & Sarno, L. (2012). How the subprime crisis went global: Evidence from bank credit default swap spreads. Journal of International Money and Finance, 31(5), 1299–1318.
10. Etale, L. M., Ayunku, P. E., & Etale, E. (2016). The impact of non-performing loans and bank performance in Nigeria. International Journal of Humanities and Social Science Invention, 5(4), 1–5.
11. Fahlenbrach, R., Prilmeier, R., & Stulz, R. M. (2018). Why does fast loan growth predict poor performance for banks? The Review of Financial Studies, 31(3), 1014–1063.
12. Fassin, Y., & Gosselin, D. (2011). The collapse of a European bank in the financial crisis: An analysis from stakeholder and ethical perspectives. Journal of Business Ethics, 102(2), 169–191.
13. Fofack, H., & Fofack, H. L. (2005). Non-performing loans in Sub-Saharan Africa: causal analysis and macroeconomic implications (Vol. 3769). World Bank Publications.
14. Foos, D., Norden, L., & Weber, M. (2010). Loan growth and riskiness of banks. Journal of Banking & Finance, 34(12), 2929–2940.
15. Ghosh, A. (2015). Banking-industry specific and regional economic determinants of non-performing loans: Evidence from US states. Journal of Financial Stability, 20, 93–104.
16. Greuning, H. van, & Bratanovic, S. B. (2009). Analysing banking risk.
17. Gyamerah, I. A., & Amoah, B. (2015). Determinants of bank profitability in Ghana. International Journal of Accounting and Financial Reporting, 5(1), 173–187.
18. Harris, R. D. F., & Tzavalis, E. (1999). Inference for unit roots in dynamic panels where the time dimension is fixed. Journal of Econometrics, 91(2), 201–226.
19. Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115(1), 53–74.
20. Isa, M. Y. M., Choong, Y. V., Fie, D. Y. G., & Rashid, M. Z. H. A. (2018). Determinants of loan loss provisions of commercial banks in Malaysia. Journal of Financial Reporting and Accounting.
21. Ivashina, V., & Scharfstein, D. (2010). Bank lending during the financial crisis of 2008. Journal of Financial Economics, 97(3), 319–338.
22. Johnson, M. A., & Mamun, A. (2012). The failure of Lehman Brothers and its impact on other financial institutions. Applied Financial Economics, 22(5), 375–385.
23. Jolevski, L. (2017). Non-Performing Loans and Profitability Indicators: The Case of the Republic of Macednia. Journal Оf Contemporary Economic Аnd Business Issues, 4(2), 5–20.
24. Khemraj, T., & Pasha, S. (2009). The determinants of non-performing loans: an econometric case study of Guyana.
25. Klein, P.-O., & Weill, L. (2018). Bank profitability and economic growth.
26. Lane, P. R., & Milesi-Ferretti, G. M. (2011). The cross-country incidence of the global crisis. IMF Economic Review, 59(1), 77–110.
27. Levin, A., Lin, C.-F., & Chu, C.-S. J. (2002). Unit root tests in panel data: asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1–24.
28. Mpofu, T. R., & Nikolaidou, E. (2018). Determinants of credit risk in the banking system in Sub-Saharan Africa. Review of Development Finance, 8(2), 141–153.
29. Murphy, A. (2008). An analysis of the financial crisis of 2008: causes and solutions. An Analysis of the Financial Crisis Of.
30. Nguyen, H., & Qian, R. (2014). Demand collapse or credit crunch to firms? Evidence from the World Bank’s financial crisis survey in Eastern Europe. Journal of International Money and Finance, 47, 125–144.
31. Niu, J. (2016). Loan growth and bank valuations. The Quarterly Review of Economics and Finance, 61, 185–191.
32. Nizaeva, M., & Coşkun, A. (2018). Determinants of the financing obstacles faced by SMEs: An empirical study of emerging economies. Journal of Economic and Social Studies, 7(2), 81.
33. Önder, Z., & Özyıldırım, S. (2013). Role of bank credit on local growth: Do politics and crisis matter? Journal of Financial Stability, 9(1), 13–25.
34. Owoputi, J. A., Olawale, F. K., & Adeyefa, F. A. (2014). Bank specific, industry specific and macroeconomic determinants of bank profitability in Nigeria. European Scientific Journal, 10(25).
35. Pearson, K. (1901). LIII. On lines and planes of closest fit to systems of points in space. The London, Edinburgh, and Dublin Philosophical Magazine and Journal of Science, 2(11), 559–572.
36. Pesaran, H. H., & Shin, Y. (1998). Generalised impulse response analysis in linear multivariate models. Economics Letters, 58(1), 17–29.
37. Pesaran, M. H., Shin, Y., & Smith, R. P. (1999). Pooled mean group estimation of dynamic heterogeneous panels. Journal of the American Statistical Association, 94(446), 621–634.
38. Pesaran, M. H., & Smith, R. (1995). Estimating long-run relationships from dynamic heterogeneous panels. Journal of Econometrics, 68(1), 79–113.
39. Rachman, R. A., Kadarusman, Y. B., Anggriono, K., & Setiadi, R. (2018). Bank-specific factors affecting non-performing loans in developing countries: Case study of Indonesia. The Journal of Asian Finance, Economics, and Business, 5(2), 35–42.
40. Rahman, M. M., Hamid, M. K., & Khan, M. A. M. (2015). Determinants of bank profitability: Empirical evidence from Bangladesh. International Journal of Business and Management, 10(8), 135.
41. Saba, I., Kouser, R., & Azeem, M. (2012). Determinants of non-performing loans: Case of US banking sector. The Romanian Economic Journal, 44(6), 125–136.
42. Saurina, J. (2009). Loan loss provisions in Spain. A working macroprudential tool. Revista de Estabilidad Financiera, 17, 11–26.
43. Sawe, S. C. (2011). Determinants of Commercial banks profitability in Kenya. University of Nairobi, Kenya.
44. Simpson, J. (2007). Expert political risk opinions and banking system returns: A revised banking market model.
45. Škarica, B. (2014). Determinants of non-performing loans in Central and Eastern European countries. Financial Theory and Practice, 38(1), 37–59.
46. Tan, M. T. B. P. (2012). Determinants of credit growth and interest margins in the Philippines and Asia. International Monetary Fund.
47. Tehulu, T. A., & Olana, D. R. (2014). Bank-specific determinants of credit risk: Empirical evidence from Ethiopian banks. Research Journal of Finance and Accounting, 5(7), 80–85.
48. ul Mustafa, A. R., Ansari, R. H., & Younis, M. U. (2012). Does the loan loss provision affect the banking profitability in case of Pakistan? Asian Economic and Financial Review, 2(7), 772.
49. Valentseva, N. I. (2017). The scope of traditional activities of commercial banks. Finance: Theory and Practice, 21(2), 51–54.
50. Vithessonthi, C. (2016). Deflation, bank credit growth, and non-performing loans: Evidence from Japan. International Review of Financial Analysis, 45, 295–305.
51. Wang, Y. (2016). What are the biggest obstacles to growth of SMEs in developing countries?–An empirical evidence from an enterprise survey. Borsa Istanbul Review, 16(3), 167–176.
52. Wang, Z., Xie, N., & Jin, Y. (2019). Do loan loss provisions affect the credit fluctuations in China’s banking system? Emerging Markets Finance and Trade, 55(11), 2425–2436.
53. Weber, O. (2012). Environmental credit risk management in banks and financial service institutions. Business Strategy and the Environment, 21(4), 248–263.
Published
2021-12-31
How to Cite
Zheng, C., & Jean-Petit, S. (2021). Long-run Effects of Market Risk Factors on Bank Performance in the SSA Banking System. European Scientific Journal, ESJ, 17(41), 130. https://doi.org/10.19044/esj.2021.v17n41p130
Section
ESJ Social Sciences
Copyright (c) 2021 Changjun Zheng, Sinamenye Jean-Petit
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
.jpg)
