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Modelling the effect of bank performance on financial stability: Fresh evidence from africa

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  • Frank Antwi

    (Accounting and Finance Department, Pentecost University, Sowutuom, Accra, Ghana)

  • Mercy Kwakye

    (Accounting and Finance Department, Pentecost University, Sowutuom, Accra, Ghana)

Abstract

This study examines the link between bank performance and bank stability in the context of African countries. Using the Augmented Mean Group (AMG) estimator and panel data from 16 selected African countries covering the period 2002–2019, this study considers whether the banking sector's performance influences the banking system's financial stability. The findings reveal a significant positive long-run relationship between ROA and financial stability. This was the case when the AMG estimator was employed and when the CCEMG was employed to check for robustness. Inflation was initially negative and insignificant but a highly significant determinant when a more robust method (CCEMG) was used. Economic growth has a negative relationship using both estimators but is insignificant, while trade openness and non-interest income had insignificant coefficients in both estimators. The granger causality results show a one-way causality established to bank stability in the case of bank performance and trade openness. In addition, there was a non-causal relationship between bank stability, non-interest income and inflation as against a double-track causation between bank stability and economic growth. African countries should strive to improve bank performance to enhance the stability of the sector. Key Words:Financial stability, Bank performance, Augment Mean Group (AMG), diversification, Africa.

Suggested Citation

  • Frank Antwi & Mercy Kwakye, 2022. "Modelling the effect of bank performance on financial stability: Fresh evidence from africa," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 11(7), pages 143-151, October.
    • Handle: RePEc:rbs:ijbrss:v:11:y:2022:i:7:p:143-151
    DOI: 10.20525/ijrbs.v11i7.2058
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