Changes in Basel Capital Requirements and Lending Ability of African Commercial Banks

Damilola Oyetade (), Adefemi A. Obalade () and Paul-Francois Muzindutsi ()
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Damilola Oyetade: School of Accounting, Economics and Finance, University of KwaZulu-Natal, South Africa
Adefemi A. Obalade: School of Accounting, Economics and Finance, University of KwaZulu-Natal, South Africa
Paul-Francois Muzindutsi: School of Accounting, Economics and Finance, University of KwaZulu-Natal, South Africa

Journal of Central Banking Theory and Practice, 2022, vol. 11, issue 3, 179-201

Abstract: This research examines the potential impact of Basel IV capital requirements (CAR) on bank lending ability in Africa. To achieve the objective, the study simulated Basel IV capital ratio using historical data to create sample representative banks as if the selected banks had implemented Basel IV CAR for the period 2000 and 2018 and used actual data for existing Basel II and III CAR. Dynamic panel regression analyses, namely the System GMM and P-ARDL, were utilised. First, our results suggest that higher Basel CAR, particularly the new Basel IV, portends short-term negative impacts on bank lending while the long-term impact on bank lending is favorable. Second, the weight of non-performing loans tends to decline as banks transitioned from lower to higher Basel CAR. Lastly, this study shows that complying with Basel IV CAR will help African banks to achieve financial deepening and increase bank lending ability.

Keywords: African Banks; Bank lending; Basel capital requirements; risk assessment. (search for similar items in EconPapers)
JEL-codes: G18 G21 G28 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:cbk:journl:v:11:y:2022:i:3:p:179-201

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