Bank Loans, Default Probabilities, and Differential Credit Treatment in Sub-Saharan Banks
Abstract
This paper investigates the bank credits, default probabilities, and differential credit treatment in banks of 16 selected Sub-Saharan Africa (SSA) countries by inclusion of annual data of 20 years. The parameters used were obtained from World Bank Development Indicators online database (WDI), Africa Development Bank (ADB), International Monetary Fund (IMF), International Financial Statistics (IFS), and Regional Economic Outlook. By mitigating the problems of spurious causality and unobserved heterogeneity, panel estimation techniques overcome common weaknesses of most cross-country approaches. Panel estimation techniques often give all countries, either small or large, an equal weighting since they are assumed to be homogeneous and the coefficients represent only average relationship, which may or may not apply to individual countries in the sample. Following Arellando and Bond (1991) and as later used by Christopoulous and Tsionas (2004), and Baltagi et al. (2008) a dynamic Generalized Method of Moments (GMM) is applied in the assessment. A dynamic panel estimator allows for the exploitation of time series variations in the data, accounts for unobserved country specific effects, allows for the inclusion of lagged variables as regressors, and controls for endogeneity of all explanatory variables.
Keywords: Bank Loans, Capital Adequacy, Default Probabilities, Differential Credit Treatment, Sub-Saharan Africa Banks
DOI: 10.7176/RJFA/11-14-04
Publication date: July 31st 2020
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ISSN (Paper)2222-1697 ISSN (Online)2222-2847
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