Nonperforming loans in Sub-Saharan Africa : causal analysis and macroeconomic implications
This paper investigates the leading causes of nonperforming loans during the economic and banking crises that affected a large number of countries in Sub-Saharan Africa in the 1990s. Empirical analysis shows a dramatic increase in these loans and extremely high credit risk, with significant differences between the CFA and non-CFA countries, and substantially higher financial costs for the latter sub-panel of countries. The results also highlight a strong causality between these loans and economic growth, real exchange rate appreciation, the real interest rate, net interest margins, and interbank loans consistent with the causality and econometric analysis, which reveal the significance of macroeconomic and microeconomic factors. The dramatic increase in these loans is largely driven by macroeconomic volatility and reflects the vulnerability of undiversified African economies, which remain heavily exposed to external shocks. Simulated results show that macroeconomic stability and economic growth are associated with a declining level of nonperforming loans; whereas adverse macroeconomic shocks coupled with higher cost of capital and lower interest margins are associated with a rising scope of nonperforming loans. These results are supported by long-term estimates of nonperforming loans derived from pseudo panel-based prediction models.
|Date of creation:||01 Nov 2005|
|Date of revision:|
|Contact details of provider:|| Postal: 1818 H Street, N.W., Washington, DC 20433|
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Poonam Gupta & Asli DemirgÃ¼Ã§-Kunt & Enrica Detragiache, 2000.
"Inside the Crisis; An Empirical Analysis of Banking Systems in Distress,"
IMF Working Papers
00/156, International Monetary Fund.
- Demirguc-Kunt, Asli & Detragiache, Enrica & Gupta, Poonam, 2006. "Inside the crisis: An empirical analysis of banking systems in distress," Journal of International Money and Finance, Elsevier, vol. 25(5), pages 702-718, August.
- Demirguc-Kunt, Asli & Detragiache, Enrica & Gupta, Poonam, 2000. "Inside the crisis : an empirical analysis of banking systems in distress," Policy Research Working Paper Series 2431, The World Bank.
- Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
- Ceyla Pazarbasioglu & Claudia H Dziobek, 1997. "Lessons From Systemic Bank Restructuring; A Survey of 24 Countries," IMF Working Papers 97/161, International Monetary Fund.
- Caprio Jr., Gerard, 1997. "Safe and sound banking in developing countries : we're not in Kansas anymore," Policy Research Working Paper Series 1739, The World Bank.
- Christian A. Emini & Hippolyte Fofack, 2004. "A financial social accounting matrix for the integrated macroeconomic model for poverty analysis : application to Cameroon with a fixed-price multiplier analysis," Policy Research Working Paper Series 3219, The World Bank.
- Célestin Monga, 1997. "A Currency Reform Index for Western and Central Africa," The World Economy, Wiley Blackwell, vol. 20(1), pages 103-126, 01.
- Demirguc-Kunt, Asli & Huizinga, Harry, 2000. "Financial structure and bank profitability," Policy Research Working Paper Series 2430, The World Bank.
- International Monetary Fund, 2000. "Loan Review, Provisioning, and Macroeconomic Linkages," IMF Working Papers 00/195, International Monetary Fund.
- FranÃ§oise Le Gall & Roland Daumont & FranÃ§ois Leroux, 2004. "Banking in Sub-Saharan Africa; What Went Wrong?," IMF Working Papers 04/55, International Monetary Fund.
- Ilan Goldfajn & Rodrigo Valdés, 1997. "Balance of Payments Crises and Capital Flows: The Role of Liquidity," Working Papers Central Bank of Chile 11, Central Bank of Chile.
- Brenda GonzÃ¡lez-Hermosillo & Ceyla PazarbaÅŸioÄŸlu & Robert Billings, 1997. "Determinants of Banking System Fragility: A Case Study of Mexico," IMF Staff Papers, Palgrave Macmillan, vol. 44(3), pages 295-314, September.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:3769. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)
If references are entirely missing, you can add them using this form.