Foreign Bank Penetration, Institutional Structures And Banking Sector Stability in Sub-saharan Africa

Abstract

ABSTRACT The purpose of this study is to enhance the understanding of the role of specific institutional structures (country-level corporate governance structures, economic institutions, political institutions, banking sector regulations) in the relationship between foreign bank penetration and banking sector stability, with a special focus on the sub-Saharan Africa’s banking sector. The first and second objectives provides insights on how country-level corporate governance structures and economic institutions influence banking sector stability in sub Saharan Africa. The third objective investigates the relationship between foreign bank penetration and banking sector stability, as well as how country level corporate governance structures and economic freedom conditions the relationship. The last objective contains analysis of how specific banking sector regulations condition the relationship between foreign bank penetration and banking sector stability in sub-Saharan African economies. Limited by data availability of the key variables of interest, the study period spans 2007 to 2017. The analytical technique employed was system Generalised Method of Moments. The results show that, country level corporate governance structures and economic institutions have a positive influence on banking sector stability. Again, in terms of banking sector stability, host economies gain from foreign bank operations than home economies. Moreover, country level corporate governance structures and economic institutions positively moderates the relationship between foreign bank penetration and banking sector stability. Finally, there is evidence of regulatory arbitrage that could potentially harm the banking sector stability of sub-Saharan African economies