Determinants of Bank Capital Structure: Evidence from South Africa

The financing decisions of banks remain an enigma, increasingly attracting the attention of banking regulators and corporate finance scholars alike. Hitherto, banks have been excluded from extant studies of capital structure principally because it was reasoned that regulation was the overriding determinant of bank capital structure. Notwithstanding, there has been increasing empirical work to the contrary. This article reports on a study investigating the determinants of bank capital structure. Utilising a sample of 16 South African banks for the period 2006–2015, panel data techniques were employed and a fixed effects model estimated to test the relationship between bank leverage and the firm-level determinants of capital structure (“standard corporate finance view”). It was established that the financing behaviour of banks mirrors that of non-financial firms. Growth opportunities, risk and size variables were positively related to leverage. The profit and the global financial crisis variables were negatively related to leverage. The results therefore confirmed banks deleveraging during the 2007–2009 global financial crisis. It was also observed that bank financing behaviour conforms to the pecking order theory. These findings also lend credence to the “standard corporate finance view” of bank capital structure and negate the role of bank capital regulation. At worst, the capital regulations are ineffectual and not binding.