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The impact of liquidity and capital requirements on lending and stability of African banks

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  • Mutarindwa, Samuel
  • Schäfer, Dorothea
  • Stephan, Andreas

Abstract

We assess whether compliance with Basel III’s main requirements, the Net Stable Funding Ratio (NSFR) and the risk-weighted Total Capital Ratio (TCR), matters for lending and stability of African banks. Banks with an NSFR or a TCR of at least the required minimum are defined as treatment group in the endogenous treatment estimations. Our results reveal that African banks complying with the capital threshold TCR lend more than banks from the less capitalized control group, while banks complying with the NSFR threshold lend less than their peers. A detailed analysis with sample splits reveals that complying with the capital threshold improves the Z-score and the ratio of non-performing loans (NPL ratio) only for those banks with stability levels above the median. The likelihood of African banks to comply with the Basel III thresholds is overall strongly dependent on the strengths of regulatory institutions in the home country and, in case of the capital ratio, also on the legal origin.

Suggested Citation

  • Mutarindwa, Samuel & Schäfer, Dorothea & Stephan, Andreas, 2020. "The impact of liquidity and capital requirements on lending and stability of African banks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 67(C).
  • Handle: RePEc:eee:intfin:v:67:y:2020:i:c:s1042443120300858
    DOI: 10.1016/j.intfin.2020.101201
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    More about this item

    Keywords

    Basel III; Net stable funding ratio; Risk-weighted capital ratio; Lending; Bank stability; Non performing loans;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • K15 - Law and Economics - - Basic Areas of Law - - - Civil Law; Common Law

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