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Do Commercial Banks’ Non-Performing Loans Respond to Environmental Financial and Economic Influences in the Sub-Saharan Region of Africa?

Author

Listed:
  • Georgina Asemota

    (Benson Idahosa University)

  • Moses Erhi

    (Benson Idahosa University)

  • Orobosa Ihensekhien

    (Benson Idahosa University)

Abstract

Recent global economic trends have resulted to financial reforms in many countries in the sub- Saharan Africa. Considering the vital roles played by the banking sub-sector in these fragile economies, the objective of the study is to assess the influences of internal and external environmental factors on nonperforming loans in sub-Saharan Africa. Prior studies are myopic in scope of study or in analysis. Annual data for the period 2012 to 2021 that represents the influences of bank operations, bank quality, monetary policy and macroeconomic conditions were sourced. The preliminary data investigation results and subsequent empirical procedures resulted in using three estimators- Dynamic Generalized Method of Moments (GMM), System GMM (SYS-GMM) and system Seemingly Unsure Regression (SYS-SUR)- to analyze the data. The results confirm that bank quality; monetary policy and bank operations were significant determinants of the variations in non-performing loans in the region. The paper reveals that restricting money supply is detrimental as it would likely lead to an increased incidence of loan default. It then recommends that monetary authority should use monetary tools such as interest rates or required reserve ratio instead of the money supply since those tools do not have any impact on NPLs.

Suggested Citation

  • Georgina Asemota & Moses Erhi & Orobosa Ihensekhien, 2023. "Do Commercial Banks’ Non-Performing Loans Respond to Environmental Financial and Economic Influences in the Sub-Saharan Region of Africa?," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 19(2), pages 269-288, April.
    • Handle: RePEc:dug:actaec:y:2023:i:2:p:269-288
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