Basel IV capital requirements and the performance of commercial banks in Africa

Abstract

Capital adequacy is considered an essential determinant banks' performance. Banks in Africa have revenue growth opportunities, but fragility and vulnerability to bank failures arising from capital inadequacy and non-performing loans affect their performances. The Basel Committee aims to introduce higher capital requirements is to strengthen the resilience of the banking system; however, the implementation of higher Basel capital requirements may affect the performance of banks. This study examines the potential impact of Basel IV capital requirements (CAR) on the performance of commercial banks from selected African countries. To achieve the set objective, the study simulated Basel IV CAR to create sample representative bank balance sheets using historical data from 2000 to 2018 because Basel IV CAR has not commenced. The study developed a sample-representative of Basel IV CAR and employed static and dynamic panel regression analyses as the estimation techniques. The results suggest that Basel IV CAR portends short-term negative impacts on bank performance while the long-term impact on bank performance is favorable.