Financial inclusion, institutional quality and bank stability: evidence from sub-Saharan Africa

Isaac Ofoeda (), John Kwaku Mensah Mawutor () and Dilys Nana Fosu-Hemaa Ohenebeng ()
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Isaac Ofoeda: University of Professional Studies, Accra
John Kwaku Mensah Mawutor: University of Professional Studies, Accra
Dilys Nana Fosu-Hemaa Ohenebeng: University of Professional Studies, Accra

International Economics and Economic Policy, 2024, vol. 21, issue 1, No 2, 27-64

Abstract: Abstract This study examines the relationship between financial inclusion, institutional quality, and bank stability in sub-Saharan Africa. Using a sample of 48 countries from 2002 to 2021, the study employs the Prais-Winsten and Hansen (2000) panel threshold estimation techniques. The findings suggest that financial inclusion, measured by account ownership, ATMs, borrowers, depositors, and bank branches, positively impacts bank stability, except for bank branches which have a negative effect. Institutional quality is found to have a significant and positive impact on bank stability, indicating its importance in reducing transaction costs and addressing asymmetric information. The study also explores the moderating role of institutional quality, revealing that the presence of institutions enhances the positive effects of ATMs, borrowers, and depositors on bank stability, while negatively impacting the relationship between bank branches and stability. Moreover, the study identifies threshold effects, with certain indicators showing different impacts on bank stability below and above specific thresholds. Policy recommendations include the need for strong institutions to promote bank stability, fostering financial inclusion in the presence of institutions, and implementing strategic reforms to increase the number of ATMs, borrowers, and depositors. Regulators are urged to focus on developing more robust institutions to enable the positive impact of borrowers and bank branches on bank stability in sub-Saharan Africa.

Keywords: Financial inclusion; Bank stability; Institutional quality; Threshold analysis (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10368-023-00578-5

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