Bank lending channel and banking sector efficiency: panel data of Egypt

Abstract

PurposeThe purpose of this paper is to examine the relevance of the bank lending channel (BLC) of monetary policy and the bank efficiency in Egypt.Design/methodology/approachThis paper examines the effectiveness of bank lending channel using generalized method of moments GMM model during the period from 1996 to 2014. Also, it uses stochastic frontier approach (SFA) to examine the bank efficiency in Egypt.FindingsThis study supports the relevance of the BLC using panel data. Moreover, applying SFA, this paper computes cost efficiency taking account of both time and country effects directly. The finding suggests that banks with low inflation and high GDP tend to perform more efficiently.Research limitations/implicationsThe limitation of the study is examining one country only.Practical implicationsThe finding signals that the Central Bank of Egypt (CBE) should adjust interest rate in order to stabilize the bank loan supply.Social implicationsIt is important for the CBE and Egyptian banks because it highlights the importance of BLC.Originality/valueIt examines one channel of monetary policy and bank efficiency in Egypt.