Information, Institutions, and Banking Sector Development in West Africa

Abstract

Using a new panel dataset for banks in eight West African countries, we explore the factors that exacerbate or alleviate excess liquidity, and the factors that promote or retard the rate of growth of banks" assets. Loan default rates in the region are high, and variations in the rate impact on liquidity and asset growth. However, the size of this effect is very sensitive to bank age. Some types of improvement in the quality of governance reduce excess liquidity and promote asset growth. However, the impact of other types of improvement, particularly with regard to corruption, is ambiguous. We uncover evidence that provides an explanation for this ambiguity. JEL classification: G21, O16

Finance and growth in Africa: The broken link

“…These findings, which are consistent with the insights of Honohan and Beck (2007), Andrianova et al (2010) and Demetriades and Fielding (2010), highlight the dysfunctional nature of African credit markets. Banking systems could be growing reflecting increased demand for financial services, while vital firm and household credit remains scarce.…”

Determinants of bank profitability before, during, and after the financial crisis

“…Banking conducts in Africa are also significantly different from popular norms in the literature. For example, the legal structure, institutions and financial policies are emerging and unstable (Demetriades & Fielding 2012). Investor protection is generally weak due to weak judicial system and poor enforcement of rules.…”

“…Corruption is systemic which heightens banks risk profile (Habib & Zurawicki, 2002). Low financial intermediation and uncertain banking conducts are likely indicators of the high operating risks that banks in this context face which partly explain why banks in Africa have the highest net interest margin compared to banks in other regions of the world (Ahokpossi, 2013;Demetriades & Fielding, 2012;Flamini et al, 2009). …”

Financial Reforms and Financial Fragility: A Panel Data Analysis

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