Abstract
The banking industry is the engine of economic activities of the modern day financial systems. As such, banks play a very significant part in supporting economic growth through the efficient alloca...
Highlights
The South African financial system has in the past decade been put through some significant tests by external shocks such as the calamitous effects of the 2007 financial crisis, volatility in the international commodity prices and the general decrease in the global growth outlook. Kganyago (2016) argue that, despite the slight economic recovery from the recent global financial crisis, the South African financial system has faced further challenges from widening interest rate spread and from the ongoing fragility in the international financial markets
Evidence from this study suggests that economic growth and real exchange rate positively influence the efficiency of the South African banking system
A negative shock to interest rate spread improves banking efficiency by about 0.3% in the long run
Summary
The South African financial system has in the past decade been put through some significant tests by external shocks such as the calamitous effects of the 2007 financial crisis, volatility in the international commodity prices and the general decrease in the global growth outlook. Kganyago (2016) argue that, despite the slight economic recovery from the recent global financial crisis, the South African financial system has faced further challenges from widening interest rate spread and from the ongoing fragility in the international financial markets. The productivity of banking institutions and the growth path of the economy will decelerate These factors provide sufficient motivation to undertake this study in order to provide policy makers and the government with precise, more directed and evidence-based empirical results on the impact of interest rate spread on the banking system efficiency in South Africa. Maredza and Ikhide (2013) used a two-stage methodology framework to measure the efficiency and productivity changes of the four major commercial banks in South Africa Their first stage results pinpointed to the fact that there was a noticeable but mild deviation of total factor productivity and efficiency measures during the 2008 financial crisis.
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