Banking regulation and bank credit delivery in selected Sub-Saharan African countries: Symmetric and asymmetric causal linkages

Abstract

This study aimed to empirically determine the symmetric and asymmetric causal relationship between banking regulation and bank credit delivery using a context of 23 sub-Saharan African countries from 1995 to 2017. The estimated symmetric and asymmetric error correction-based multivariate panel Granger-causality models allowed for both long-run and short-run causal relationships. The results generally supported the existence of long-run symmetric and asymmetric causality between banking regulatory measures, bank credit delivery and two intermittent variables, namely, economic growth and inflation. In the short run, bidirectional symmetric causality existed between banking entry barriers and bank credit delivery, as well as a one-way symmetric causal flow running from bank credit delivery to banking capital regulations. Moreover, positive shocks to bank credit delivery Granger caused negative shocks to banking entry barriers, activity restrictions or capital regulations, while negative shocks to mixing of banking and commerce restrictions Granger caused positive or negative shocks to bank credit delivery. The findings highlight that policymakers should take into consideration not only the symmetric but also the asymmetric causal effects of reforms aimed at enhancing banking regulation and such reforms should be well-targeted and well-designed for them to stimulate bank credit delivery.