Banking Sector Competition and Financial Development in Sub-Saharan Africa

Twum Amankwaa,Emmanuel Anane,Charles K. Ricky-Okine

doi:10.47127/ijtmr.v5i3.104

Abstract

The study sort to establishing a relationship between banking sector competition and financial development in subSaharan n Africa. The study further disaggregated the data used into Francophone and Anglophone countries, and these were examined separated and compared. Using an annual data on banks across 37 countries in Sub-Saharan Africa spanning the period 2001-2016 and employing the Fixed Effects estimation technique, the study revealed that there is a positive and significant relationship between financial development (FDCredit) and competition (CR3) for the full sample and the anglophone samples. The study further revealed that banking sector stability is essential for the financial development of both Anglophone and francophone countries within the sub-region. Macroeconomic variables did not have any impact on financial development generally except in francophone countries where exchange rates were found to have an impact on financial development. Bank-level variables such as ZSCORE, non-performing loans, profitability, liquidity and capitalization, on the hand had little impact in Anglophone countries on financial development compared to francophone countries. The study found that larger banks contribute positively to the development of the financial sector and banks tend to be bigger in Anglophone countries, and their banking sector is also more competitive than the francophone countries for the period used. Less emphasis should be placed on bank-level variables as these do not have significant impacts on the financial sector for Anglophone countries. Francophone countries should, however, control bank-level variables to ensure that they achieve greater financial development. Citation: Ricky-Okine, C. K., Amankwaa, T.and Anane, E.Banking Sector Competition and Financial Development in Sub-Saharan Africa,2020; 5(3): 58-85. Received: July 18, 2020Accepted: September 30, 2020

Highlights

In the last three decades, the financial systems of many African countries have undergone significant transformation
The main results are estimated using linear time series techniques following previous studies on economic growth. Consistent with this design, robustness tests are performed to determine whether the estimates obtained are efficient and consistent and to ensure that the conclusions are valid. 3.1 research methods The research methods employed in this study have been explained under the following sub-titles: data and data source, definition and measurement of variables, and measurement of bank liquidity 3.2 Data and Data Source Annual data on banks across 37 countries in Sub-Saharan Africa spanning the period 2001-2016 was used for the study
The financial establishments include economic authorities and deposit money banks, along with other financial institutions such as leasing companies, moneylenders, insurance corporations, pension funds, and foreign exchange companies (Demirguc-Kunt et al, 2015). This proxy or indicator captures the essence of domestic asset distribution within an economy. 3.3.3 Broad money to GDP ratio (BM) Broad money is the sum of currency outside banks; demand deposits other than those of the central government; the time, savings, and foreign currency deposits of resident sectors other than the central government (World Bank, 2015). It measures the degree of monetization of an economy and as such has been employed as a standard measure of financial development in many studies, of which includes that of King and Levine (1993b); Murinde and Eng (1994); Lyons and Murinde (1994); Odhiambo (2004). 3.3.4 Competition

Summary

Introduction

In the last three decades, the financial systems of many African countries have undergone significant transformation. FDCredit); country-level control variables: Financial Openness (FINOPP), Exchange Rate (EXCH), Monetary Policy (MPR); and bank level controls: Bank Size (SIZE), Profitability (ROAA), Bank Capitalization (CAP), Bank Stability (ZSCORE), Bank Liquidity (LIQ) and Non-Performing Loans (NPLR)

Results

Conclusion