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 differen...
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| Format: | Policy Research Working Paper |
| Language: | English |
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World Bank, Washington, DC
2012
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| Online Access: | http://documents.worldbank.org/curated/en/2005/11/6406525/nonperforming-loans-sub-saharan-africa-causal-analysis-macroeconomic-implications http://hdl.handle.net/10986/8498 |
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okr-10986-84982021-04-23T14:02:43Z Nonperforming Loans in Sub-Saharan Africa : Causal Analysis and Macroeconomic Implications Fofack, Hippolyte L. ACCOUNTING ASSET MANAGEMENT ASSET MANAGEMENT COMPANIES BALANCE OF PAYMENTS BANK ACCOUNTING BANK CAPITAL BANKING CRISES BANKING CRISIS BANKING INDUSTRY BANKING SECTOR BANKING SYSTEM BANKS BANQUE CENTRALE DES ETATS DE L'AFRIQUE DE L'OUEST BANQUE DES ETATS DE L'AFRIQUE CENTRALE CAPITAL BASE CAPITAL REQUIREMENT CAPITAL REQUIREMENTS CAPITAL TO ASSET RATIO CENTRAL BANK CENTRAL BANKS COMMERCIAL BANKS COMMODITY PRICES COST OF CAPITAL COUNTRY COMPARISONS CREDIT RISK CREDIT RISKS DEPOSIT INSURANCE DEPOSIT INSURANCE SCHEMES DEPOSITORS DEPOSITS DEREGULATION DIRECT INVESTMENT DOMESTIC CREDIT ECONOMIC GROWTH EMERGING MARKET ECONOMIES EMPIRICAL ANALYSIS EXCHANGE RATES FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DISTRESS FINANCIAL INFORMATION FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FISCAL DEFICITS GOVERNMENT SUPPORT INDIRECT CHANNELS INFLATION INSIDER LENDING INSOLVENT BANKS INTEREST PAYMENTS INTEREST RATE INTEREST RATES INVESTMENT PROJECTS LENDER OF LAST RESORT LIQUID ASSETS LIQUIDITY MACROECONOMIC STABILITY MATURITIES MATURITY MEASURES OF PROFITABILITY MERCHANT BANKS MERGERS MIDDLE EAST MONETARY AUTHORITIES MONETARY POLICY MORAL HAZARD NET INTEREST MARGIN NONPERFORMING ASSETS NONPERFORMING LOANS OWNERSHIP STRUCTURE PORTFOLIO PORTFOLIOS PREDICTIONS PRIVATE BANKS PRIVATE INVESTMENT PROBLEM BANKS PUBLIC ENTERPRISES REAL ESTATE LOANS REAL INTEREST RATES RECAPITALIZATION RESOURCE MOBILIZATION RETURN ON ASSETS RETURN ON EQUITY RISK ASSESSMENT RISK EXPOSURE RISK MANAGEMENT RUNS ON BANKS SHAREHOLDERS SOLVENCY SPECULATIVE ATTACKS STATE BANKS SUB-SAHARAN AFRICA SUBSTANDARD LOANS SYSTEMIC BANKING CRISES VOLATILITY VULNERABILITY 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. 2012-06-19T21:59:43Z 2012-06-19T21:59:43Z 2005-11 http://documents.worldbank.org/curated/en/2005/11/6406525/nonperforming-loans-sub-saharan-africa-causal-analysis-macroeconomic-implications http://hdl.handle.net/10986/8498 English Policy Research Working Paper; No. 3769 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research Africa Southern Africa |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
ACCOUNTING ASSET MANAGEMENT ASSET MANAGEMENT COMPANIES BALANCE OF PAYMENTS BANK ACCOUNTING BANK CAPITAL BANKING CRISES BANKING CRISIS BANKING INDUSTRY BANKING SECTOR BANKING SYSTEM BANKS BANQUE CENTRALE DES ETATS DE L'AFRIQUE DE L'OUEST BANQUE DES ETATS DE L'AFRIQUE CENTRALE CAPITAL BASE CAPITAL REQUIREMENT CAPITAL REQUIREMENTS CAPITAL TO ASSET RATIO CENTRAL BANK CENTRAL BANKS COMMERCIAL BANKS COMMODITY PRICES COST OF CAPITAL COUNTRY COMPARISONS CREDIT RISK CREDIT RISKS DEPOSIT INSURANCE DEPOSIT INSURANCE SCHEMES DEPOSITORS DEPOSITS DEREGULATION DIRECT INVESTMENT DOMESTIC CREDIT ECONOMIC GROWTH EMERGING MARKET ECONOMIES EMPIRICAL ANALYSIS EXCHANGE RATES FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DISTRESS FINANCIAL INFORMATION FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FISCAL DEFICITS GOVERNMENT SUPPORT INDIRECT CHANNELS INFLATION INSIDER LENDING INSOLVENT BANKS INTEREST PAYMENTS INTEREST RATE INTEREST RATES INVESTMENT PROJECTS LENDER OF LAST RESORT LIQUID ASSETS LIQUIDITY MACROECONOMIC STABILITY MATURITIES MATURITY MEASURES OF PROFITABILITY MERCHANT BANKS MERGERS MIDDLE EAST MONETARY AUTHORITIES MONETARY POLICY MORAL HAZARD NET INTEREST MARGIN NONPERFORMING ASSETS NONPERFORMING LOANS OWNERSHIP STRUCTURE PORTFOLIO PORTFOLIOS PREDICTIONS PRIVATE BANKS PRIVATE INVESTMENT PROBLEM BANKS PUBLIC ENTERPRISES REAL ESTATE LOANS REAL INTEREST RATES RECAPITALIZATION RESOURCE MOBILIZATION RETURN ON ASSETS RETURN ON EQUITY RISK ASSESSMENT RISK EXPOSURE RISK MANAGEMENT RUNS ON BANKS SHAREHOLDERS SOLVENCY SPECULATIVE ATTACKS STATE BANKS SUB-SAHARAN AFRICA SUBSTANDARD LOANS SYSTEMIC BANKING CRISES VOLATILITY VULNERABILITY |
| spellingShingle |
ACCOUNTING ASSET MANAGEMENT ASSET MANAGEMENT COMPANIES BALANCE OF PAYMENTS BANK ACCOUNTING BANK CAPITAL BANKING CRISES BANKING CRISIS BANKING INDUSTRY BANKING SECTOR BANKING SYSTEM BANKS BANQUE CENTRALE DES ETATS DE L'AFRIQUE DE L'OUEST BANQUE DES ETATS DE L'AFRIQUE CENTRALE CAPITAL BASE CAPITAL REQUIREMENT CAPITAL REQUIREMENTS CAPITAL TO ASSET RATIO CENTRAL BANK CENTRAL BANKS COMMERCIAL BANKS COMMODITY PRICES COST OF CAPITAL COUNTRY COMPARISONS CREDIT RISK CREDIT RISKS DEPOSIT INSURANCE DEPOSIT INSURANCE SCHEMES DEPOSITORS DEPOSITS DEREGULATION DIRECT INVESTMENT DOMESTIC CREDIT ECONOMIC GROWTH EMERGING MARKET ECONOMIES EMPIRICAL ANALYSIS EXCHANGE RATES FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DISTRESS FINANCIAL INFORMATION FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FISCAL DEFICITS GOVERNMENT SUPPORT INDIRECT CHANNELS INFLATION INSIDER LENDING INSOLVENT BANKS INTEREST PAYMENTS INTEREST RATE INTEREST RATES INVESTMENT PROJECTS LENDER OF LAST RESORT LIQUID ASSETS LIQUIDITY MACROECONOMIC STABILITY MATURITIES MATURITY MEASURES OF PROFITABILITY MERCHANT BANKS MERGERS MIDDLE EAST MONETARY AUTHORITIES MONETARY POLICY MORAL HAZARD NET INTEREST MARGIN NONPERFORMING ASSETS NONPERFORMING LOANS OWNERSHIP STRUCTURE PORTFOLIO PORTFOLIOS PREDICTIONS PRIVATE BANKS PRIVATE INVESTMENT PROBLEM BANKS PUBLIC ENTERPRISES REAL ESTATE LOANS REAL INTEREST RATES RECAPITALIZATION RESOURCE MOBILIZATION RETURN ON ASSETS RETURN ON EQUITY RISK ASSESSMENT RISK EXPOSURE RISK MANAGEMENT RUNS ON BANKS SHAREHOLDERS SOLVENCY SPECULATIVE ATTACKS STATE BANKS SUB-SAHARAN AFRICA SUBSTANDARD LOANS SYSTEMIC BANKING CRISES VOLATILITY VULNERABILITY Fofack, Hippolyte L. Nonperforming Loans in Sub-Saharan Africa : Causal Analysis and Macroeconomic Implications |
| geographic_facet |
Africa Southern Africa |
| relation |
Policy Research Working Paper; No. 3769 |
| description |
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. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Fofack, Hippolyte L. |
| author_facet |
Fofack, Hippolyte L. |
| author_sort |
Fofack, Hippolyte L. |
| title |
Nonperforming Loans in Sub-Saharan Africa : Causal Analysis and Macroeconomic Implications |
| title_short |
Nonperforming Loans in Sub-Saharan Africa : Causal Analysis and Macroeconomic Implications |
| title_full |
Nonperforming Loans in Sub-Saharan Africa : Causal Analysis and Macroeconomic Implications |
| title_fullStr |
Nonperforming Loans in Sub-Saharan Africa : Causal Analysis and Macroeconomic Implications |
| title_full_unstemmed |
Nonperforming Loans in Sub-Saharan Africa : Causal Analysis and Macroeconomic Implications |
| title_sort |
nonperforming loans in sub-saharan africa : causal analysis and macroeconomic implications |
| publisher |
World Bank, Washington, DC |
| publishDate |
2012 |
| url |
http://documents.worldbank.org/curated/en/2005/11/6406525/nonperforming-loans-sub-saharan-africa-causal-analysis-macroeconomic-implications http://hdl.handle.net/10986/8498 |
| _version_ |
1764407955022675968 |