Bank stability in South Africa: what matters?

Abstract

The study examined the determinants of bank stability within the South African banking sector. By controlling for individual bank characteristics and market characteristics, the study determined possible determinants of solvency, a proxy for bank stability, measured by z-score within the South African financial sector. The South African financial sector is highly concentrated but with a significantly large number of banks, the greater portion being foreign owned banks. The business models of some of the financial intermediaries differ from the big four and therefore the influence of the type of business model is of great interest in this study, as it highlights a unique feature of the South African financial sector. The study’s investigation used panel data estimation techniques and found that among the specific bank characteristics, lending activity and capitalization do significantly affect solvency of banks and at sector level concentration was significant. The crisis dummy also revealed that the presence of a financial crisis heightened insolvency. The results have implications for financial institutions and therefore are of interest to regulators, bank management and researchers. Policy prescription in the form of Prompt Corrective Action framework is made to ensure proactive reaction to trends likely to cause instability.

Determinants of the Profits in Regional Development Banks in Indonesia

“…There is no impact on credit risk on bank profitability, which Lee also found (2017). In addition, ETA can increase higher profitability, consistent with the research of Boujelbene (2012), Ben Khediri andBen-Khedhiri (2009), Dietrich and Wanzenried (2010), Flamini et al (2009), Petria et al al (2015), Roman and Dãnuleþiu (2013), Stanèiae et al (2014), Sastrosuwito and Suzuki (2012), Iramani et al (2018), and Mishi and Khumalo (2019). In addition, better capital strength provides more effective business opportunities.…”

Financial Depth, Bank Competition and Economic Performance: A Cross-Country Analysis

“…Financial sector rivalry matters for a number of reasons, among others, fair pricing, efficiency, innovation, economic growth and financial inclusion (Bikker & Haff, 2002;Claessen & Lauven, 2005;Ngonyama & Simatele, 2017). On the other hand, competition is a double edged sword as too much competition can be detrimental to financial stability (Mishi, & Khumalo, 2019). As such, it is argued that the global financial crisis aroused the interest of policy makers and academics in understanding the importance of bank competitions and the role of government in competition policies.…”

The efficacy of financial stability on economic growth: the experience of developing countries with large financial sectors

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