Foreign Diversification and Performance of Quoted Deposit Money Banks in Selected Sub-Sahara African Countries

Abstract

Foreign diversification offers prospective market opportunities which afford firms prospects for greater growth and penetration of global markets. This study investigated the effect of foreign diversification on performance of quoted deposit money banks in selected Sub-Sahara African countries; Botswana, Ghana, Kenya, Malawi, Mauritius, Namibia, Nigeria, South Africa, Uganda, Zimbabwe and Zambia. The study employs secondary data collected and computed from sampled deposit money banks annual audited financial statements. Employing the use of descriptive statistics, correlation analysis, panel unit root analysis, co-integration test, multivariate panel data analysis and the system- GMM for a period of 2007 – 2017, the data were estimated with the aid of Eviews 9.0 econometric statistical package. Using dependent variables (Net interest margin and Tobin Q), explanatory variables of foreign diversification, bank’s size and bank’s age respectively. The findings revealed that foreign diversifications have negative and significant effect on all the performance indicators (NIM and TOBIN Q) used in the study. The explanatory variable (foreign diversification) was significant at 1% significance level. The findings from robustness check showed that the coefficients of foreign diversification are also largely negative for most of the banks. This study therefore recommends, amongst others, banks should consider diversification as a long run strategy for promoting growth and other forms of expansions. This can be achieved by promoting more regional banking integration within the sub-region. Given that formalities are already on the ground to facilitate entry and establishment within economies in the regional blocs, diversification in this direction will involve less institutional obstacles

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