Differences in bank profit persistence in Sub-Saharan Africa

Abstract

Purpose The purpose of this paper is to examine differences in determinants of bank profit persistence among Sub-Saharan African (SSA) countries. Design/methodology/approach Using system generalized method of moments and data from four SSA countries during the period 2006–2012, this study considers differences in determinants of bank profit persistence across countries. Findings Efficiency in cost management is a major determinant of profit persistence in all the countries. However, concentration is found to be insignificant in all the estimations, suggesting that efficiency may be a more important determinant of profit persistence than concentration. Economic freedom associates negatively with profit persistence in Ghana, but its effect is insignificant in Tanzania, Kenya and South Africa. Lending specialization translates into less profit persistence in South Africa, but greater persistence in Tanzania. Higher levels of financial development result in lower profit persistence in Kenya and Ghana, but does not matter in Tanzania and South Africa. Practical implications The level of profit persistence gives an indication of the effectiveness of competition policies, and the differences observed in their determinants in this study suggest the need for tailor-made policy responses in the different countries. Originality/value This study improves the understanding of why some banking market competition policies have not achieved the desired outcomes in some countries. It is evident that blanket rules or wholesale importation of policies from other countries may not work in different contexts.