The Impact of Liquidity and Capital Requirements on Lending and Stability of African Banks

Aufsätze referiert extern - Web of Science

Samuel Mutarindwa, Dorothea Schäfer, Andreas Stephan

In: Journal of International Financial Markets, Institutions & Money 67 (2020), 101201, S. 1-20

Abstract

We assess whether compliance with Basel III’s main requirements, the Net Stable Funding Ratio (NSFR) and the risk-weighted Total Capital Ratio (TCR), matters for lending and stability of African banks. Banks with an NSFR or a TCR of at least the required minimum are defined as treatment group in the endogenous treatment estimations. Our results reveal that African banks complying with the capital threshold TCR lend more than banks from the less capitalized control group, while banks complying with the NSFR threshold lend less than their peers. A detailed analysis with sample splits reveals that complying with the capital threshold improves the Z-score and the ratio of non-performing loans (NPL ratio) only for those banks with stability levels above the median. The likelihood of African banks to comply with the Basel III thresholds is overall strongly dependent on the strengths of regulatory institutions in the home country and, in case of the capital ratio, also on the legal origin.

Dorothea Schäfer

Forschungsdirektorin Finanzmärkte in the Macroeconomics Department



JEL-Classification: G21;G28;K15
Keywords: Basel III, net stable funding ratio, risk-weighted capital ratio, lending, bank stability, non performing loans
DOI:
https://doi.org/10.1016/j.intfin.2020.101201

keyboard_arrow_up