Foreign bank and banking stability in Africa: does strong and weak corporate governance systems under different regulatory regimes matter?
Date
2021
Journal Title
Journal ISSN
Volume Title
Publisher
Journal of Financial Economic Policy
Abstract
Purpose: The purpose of this paper is to examine the effect of foreign bank assets (FBA) and (FBP)
presence is examined in terms of banking stability in the economies with strong and weak country-level corporate
governance (CLCG) in Africa between 2006 and 2015.
Design/methodology/approach: Using a Prais-Winsten panel data model of 86 banks in about 30
African economies: findings on how FBA and presence influence banking stability in strong and weak
corporate governance economies under different regulatory regimes are reported for the first time in
Africa.
Findings: The findings show that foreign bank presence (FBP) and assets promote banking stability.
However, the positive effect of FBA and presence is enhanced in economies with strong CLCG, whereas the
positive effect of FBA and presence is weakened in economies with weak CLCG. After introducing different
regulatory regimes, it is observed that the enhancing effect of FBP and assets on banking stability in the full
sample and economies with strong and weak CLCG systems are deepened or improved under the loan loss
provisional regulation regime. However, under the private and public sector-led financial transparency
regulations, the reducing effect of FBP and assets on banking stability in economies with weak corporate
governance systems is further dampened.
Practical implications: These findings show that the relationship between FBP and assets is deeply
shaped by corporate governance systems and regulatory regimes in Africa. Hence, policymakers must build
strong corporate governance and sound regulatory regimes to enhance how foreign bank operations promote
banking stabilityOriginality/value – This study presents first-time evidence on how FBA and presence influence banking
stability under strong and weak governance systems while considering different regulatory regimes.
Description
Research Article
Keywords
Financial markets and institutions, Economics of regulation, Stability