Bank Stability and Economic Growth in Sub-Saharan Africa

Abstract

Bank stability and growth of economies has gained considerable debate in recent times due to the overriding importance of the banking industry in providing and allocating financial resources to the various sectors of the economy. This study investigated the banking stability of Sub-Saharan Africa economies and its relation with the growth of the region by using six year data from 2010 to 2015 from the global financial development database. Bank stability was measured by the z-score which compares the buffer of a country's commercial banking system (capitalization and returns) with the volatility of those returns. The study investigated the short run and long run relationships between bank stability and economic growth. These objectives were investigated based on the explanatory design and quantitative approach and the autoregressive distributed lag model was used to analyse the objectives. The study found evidence of both short run and long run relationship between bank stability and economic growth. The study concluded that high levels of bank instability lower the regional growth while the stability of the banking sector on the other hand increases the growth of the region in both the short and long run. It was recommended that central banks and management of commercial banks of the Sub-Sahara Africa economies work on boosting the resilience of their respective banking sectors so as to influence the long term growth of the Sub-Saharan African economies.