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Banking Efficiency and Financial Development in Sub-Saharan Africa (SSA)

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  • Sandrine Kablan

    () (University of Paris)

Abstract

This study assesses the determinants of banking system efficiency in sub-Saharan Africa (SSA) and asks what, besides the degree of efficiency, explains the low level of financial development in the region. It uses stochastic frontier analysis to measure efficiency and a generalized method of moments system to explain financial development. SSA banks are found to be generally cost-efficient, with some differences across sub-regions. Among the determinants of efficiency, Return On Equity and non performing loans seem to have a negative impact, highlighting the problem of moral hazard faced by banks and the weakness of the judicial and legal environment in enforcing credit contracts. Financial development in SSA could be improved by better macroeconomic stabilization policy and a more competitive banking sector.

Suggested Citation

  • Sandrine Kablan, 2009. "Banking Efficiency and Financial Development in Sub-Saharan Africa (SSA)," The African Finance Journal, Africagrowth Institute, vol. 11(2), pages 28-50.
  • Handle: RePEc:afj:journl:v:11:y:2009:i:2:p:28-50
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    Citations

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    Cited by:

    1. Asongu Simplice, 2014. "Fresh Patterns of Liberalization, Bank Return and Return Uncertainty in Africa," Working Papers 14/004, African Governance and Development Institute..
    2. Simplice Anutechia Asongu, 2012. "Bank Efficiency and Openness in Africa: Do Income Levels Matter?," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 4(2), pages 115-122, December.
    3. Simplice A. Asongu, 2014. "New Financial Development Indicators: With a Critical Contribution to Inequality Empirics," The International Journal of Economic Behavior - IJEB, Faculty of Business and Administration, University of Bucharest, pages 33-50.
    4. Simplice A. Asongu, 2014. "New Financial Development Indicators: With a Critical Contribution to Inequality Empirics," The International Journal of Economic Behavior - IJEB, Faculty of Business and Administration, University of Bucharest, pages 33-50.
    5. Yibin Mu & Peter Phelps & Janet Gale Stotsky, 2013. "Bond Markets in Africa," IMF Working Papers 13/12, International Monetary Fund.
    6. Simplice A., Asongu, 2011. "Globalization, financial allocation efficiency and regional economic dynamics: asymmetric panel evidence from Africa," MPRA Paper 33901, University Library of Munich, Germany.
    7. Aiello, Francesco & Bonanno, Graziella, 2014. "On the Sources of Heterogeneity in Banking Efficiency Literature," MPRA Paper 58591, University Library of Munich, Germany.
    8. Leo Frey & Ulrich Volz, 2013. "Regional Financial Integration In Sub-Saharan Africa – An Empirical Examination Of Its Effects On Financial Market Development," South African Journal of Economics, Economic Society of South Africa, pages 79-117.
    9. Calixte Ahokpossi & Kareem Ismail & Sudipto Karmakar & Mesmin Koulet-Vickot, 2013. "Financial Depth in the WAEMU; Benchmarking Against Frontier SSA Countries," IMF Working Papers 13/161, International Monetary Fund.
    10. Simplice A., Asongu, 2011. "New financial intermediary development indicators for developing countries," MPRA Paper 30921, University Library of Munich, Germany.
    11. Taiwo Ajilore & Sylvanus Ikhide, 2012. "A Bounds Testing Analysis of Migrants Remittances and Financial Development in Selected Sub-Sahara African Countries," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 4(2), pages 079-096, December.
    12. Simplice A Asongu, 2013. "How has politico-economic liberalization affected financial allocation efficiency? Fresh African evidence," Economics Bulletin, AccessEcon, vol. 33(1), pages 663-676.
    13. Asongu Simplice, 2011. "Globalization, Financial Development and Regional Economic Dynamics: asymmetric panel evidence from Africa," Working Papers 11/008, African Governance and Development Institute..

    More about this item

    Keywords

    Cost-efficiency; Stochastic Frontier Analysis; Banking System; Financial Development; Sub-Saharan Africa;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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