Bank Stability and Economic Growth in Selected Sub-Saharan African Countries (2001-2023)
Abstract
The study examined the effects of bank stability on economic growth in selected Sub-Saharan African (SSA) Countries from 2001 to 2023 using the panel data methodology. The regressor is bank stability measured by capital adequacy, asset quality, bank liquidity, bank z-score, private sector credits, and profit diversification while the regressand is economic growth measured by gross domestic product growth rate (GDPR). Again, the study controlled for political stability and absence of terrorism, government effectiveness, and unemployment rate. The study sourced data from 4 SSA Countries out of the 48 countries situated in SSA Countries. Meanwhile, data were sourced from both the apex banks of the 4 selected Sub SSA Countries and also from the World Bank Data Base over the studied periods. Both the Hausman Test and the Breusch Pagan test evidenced that the Fixed Effect model is the most appropriate model for the study. The study reported that Capital Adequacy and Private Sector Credits exerted positive significant effect on economic growth in SSA Countries. However, asset Quality has a negative minimal effect on economic growth in SSA Countries. Meanwhile, Bank Liquidity and Profit Diversification exerted positive minimal effect on economic growth in SSA Countries. Again, Bank Z-Score has an adverse minimal effect on GDPR in SSA Countries. Hence, the study concludes that, Capital Adequacy and Private Sector Credits are critical to economic growth in SSA Countries. As such, bank regulators in SSA Countries should ensure that bank management in each of the sampled SSA Countries should adhere to its Capital Adequacy Ratio. Lastly, banks in SSA Countries should increase the credits extended to the private sector, if they must record sustainable growth.
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