Basel III liquidity rules: The implications for bank lending growth in Africa

Abstract

This paper examines the possible loan growth effect of the Basel III NSFR and LCR requirements in Africa and seeks to determine whether the different regions of the continent are affected differently. The paper also offers what is possibly the first investigation of how the interaction between the performance of loan portfolios and the new Basel III liquidity requirements might shape bank loan growth rates. Using a dataset of 361 commercial banks across 38 African countries over the 2005–2015 period, our static and dynamic panel analyses show that both the NSFR and the LCR exert significant positive effects on bank loan growth rates. The results also reveal that the NSFR reduces the impact of the negative effect of poor performance of loan portfolios on bank loan growth rates. Compliance with the Basel III liquidity rules in Africa is therefore likely to have beneficial impacts on policies intended to increase bank lending in the continent.