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2009 AEC-Confronting the Global Financial Crisis Bank Efficiency Profitability and Banking System in Africa

11-Nov-2009

The paper analyzes the efficiency and profitability of commercial banks in 29 Sub-Saharan African countries during 2000-2007. Although Africa was not initially hit by the global financial crisis, particularly it examines as to whether the African banking sector may be exposed to contagion effects of the financial crisis while investigating not only banks’ efficiency but also banking system in Africa. It employs parametric methods, stochastic frontier approach to measure banks’ cost and profit efficiency. Moreover, the paper analyzes the efficiency and profitability of commercial banks by each group such as emerging market (South Africa), frontier markets, or financially developing markets, as well as by each case of domestic bank, Sub-Saharan African (SSA) foreign bank, or non-SSA foreign bank. Furthermore, using regression analysis, the paper discusses the correlation of technical efficiency scores with the financial indicators such as asset quality, capital ratios, operational and liquidity ratios, as well as z scores, a proxy measure of banking stability. The paper concludes with a brief assessment of pre-effects of the crisis, by pointing out the issues on Africa's banking system and by suggesting policy implications.

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