The Effect of Export Commodities Price Fluctuation on the Banking Sectors' Financial Performance of the Sub-Saharan African States

Abstract

This study examines the impact of export commodity price fluctuation on the financial sector performance in some selected sub-Saharan African (SSA) countries. The objective is to determine how instability in export commodity prices transmit to banking sector performance indicators in the region. Essentially a longitudinal study is conducted by combing annual time series data (1996 – 2018) for 18 sub-Saharan Africa countries that are resource exporter sourced from United Nations Conference on Trade and Development (UNCTAD) and World Bank database. The study adopts inferential, descriptive ex-post facto research design, using panel data covering the period 1996 to 2018 sourced from eighteen major primary commodity exporting countries in the sub-Saharan African states. Z-score to evaluate the probability of banking default. Oil price volatility is estimated using a GARCH data analysis framework in terms of mild volatility and intense volatility was applied to estimate the export commodity volatility while Z-score was used to profile the banking performance. It is found that intense commodity price fluctuations exert more debilitating effects on all banking sector performance indicators among the SSA countries with strongest effect of commodity price volatility on the banking sector performance being driven due to vulnerability of the banking sector. It is therefore recommended that banks evolve more efficient resilience mechanisms and that monetary and fiscal policy authorities should seek to enhance domestic capacity of the financial system to withstand domestic export commodity shock over time.