The Effects of Changing Macroeconomic Conditions on the Commercial Bank Returns in South Africa

Tshepang Mofokeng () and Fabian Moodley ()
Additional contact information
Tshepang Mofokeng: School of Economic Science, North-West University, Gauteng 1174, South Africa
Fabian Moodley: School of Economic Science, North-West University, Gauteng 1174, South Africa

International Journal of Economics and Financial Issues, 2025, vol. 15, issue 2, 76-90

Abstract: The stability and profitability of commercial banks are closely tied to macroeconomic conditions, yet the precise nature of this relationship remains debated, especially in emerging markets like South Africa. Consequently, the objective of this study is to examine the effect of macroeconomic factors on South African commercial bank returns under changing market conditions. Using a two-state Markov regime-switching model, the study analyses data from six major South African banks over the period 2002 to 2023, including crucial financial periods like the global financial crisis (GFC) and the COVID-19 pandemic. The study finds that ABSA, Capitec, Nedbank, First Rand Bank, Standard Bank and Investec bank returns are influenced both positively and negatively by macroeconomic variables. Furthermore, such an effect alternates with bull and bear conditions which makes the effect nonlinear, time-varying and regime specific. This research contributes to the literature by applying regime-switching methodologies to an emerging market, revealing the non-linear and time-varying effects of macroeconomic conditions on bank returns. The study offers vital insights for policymakers and investors, emphasizing the need for adaptive financial strategies in managing bank performance under fluctuating economic conditions. By highlighting the differential effects of macroeconomic factors in various market regimes, this research provides a framework for more resilient financial decision-making in the South African banking sector.

Keywords: Macroeconomic Variables; Commercial Banks; Markov Model; Bull; and Bear Regimes (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://econjournals.com/index.php/ijefi/article/download/17754/8576 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eco:journ1:v:15:y:2025:i:2:id:17754

Ordering information: This journal article can be ordered from
https://econjournals.com/index.php/ijefi

DOI: 10.32479/ijefi.17754

Access Statistics for this article

More articles in International Journal of Economics and Financial Issues from International Journal of Economics and Financial Issues
Bibliographic data for series maintained by Monica Sinhat ().