 Basel III Capital Regulations and Bank Efficiency: Evidence from Selected African CountriesAyodeji Michael Obadire,
Vusani Moyo and
Ntungufhadzeni Freddy Munzhelele
IJFS, 2022, vol. 10, issue 3, 1-22 Abstract: The core function of a commercial bank is the provision of credit facilities to its customers and to keep the flow and cycle of economic and financial resources balanced. Banks can only perform these functions if they are well regulated and efficient. The main focus of this study is to analyse the efficiency of African banks, most importantly after the 2008 global financial crisis when the Basel III regulations were popularly adopted by banks globally. The research focus was examined in two ways, the first part focused on investigating the impact of the Basel III capital regulations on the operational and investment efficiency of African banks by using the random effects and pooled ordinary least square panel data regression models. The second part examined if the African banks are indeed efficient by analysing their level of efficiency using the input-oriented DEA approach. The study used audited bank-level data from 45 listed banks operating in six African nations, namely, South Africa, Nigeria, Kenya, Tanzania, Uganda and Malawi, that have adopted the Basel III Accord for the period from 2010 to 2019. The bank-level data were obtained from the IRESS database. The findings revealed that capital buffer premiums significantly affect the operating and investment efficiency of African banks positively. This relationship implies that the capital buffer premium does not only serve as cushion capital against financial, market and economic shocks but also improves the banks’ efficiency by influencing the banks’ decisions and perspective on cost containment strategies. Another key finding is the positive influence the liquidity coverage ratio has on banks’ operational efficiency. The implication of this relationship may simply mean that African banks with well-performing liquidity ratios are efficient in their operations with the ability to meet their short-term obligations such as meeting customers’ credit needs, unannounced depositors’ withdrawals and creditors’ repayments, amongst others. This result could well be interpreted that adopting stricter liquidity requirements creates a liquidity buffer for African banks, giving them cushion confidence to undertake profitable and high-yielding projects, which invariably lead to increased profitability and operational efficiency. Furthermore, the DEA results showed that the sampled banks are operationally efficient with an aggregate of 84.8%, and for their investment efficiency, an aggregate of 94.9%. These findings suggest that African banks are largely efficient and can survive any possible financial or economic crisis. It can be put forward that it is probable that banks that are yet to adopt the Basel III Accord or strengthen their capital and liquidity base, are less efficient and might fail during a global crisis. The current work suggests some appropriate policy-based recommendations. Keywords: African bank efficiency; capital adequacy ratios; capital buffer premiums; DEA; liquidity requirements; static panel data (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:gam:jijfss:v:10:y:2022:i:3:p:57-:d:865027 Access Statistics for this article IJFS is currently edited by Ms. Hannah Lu More articles in IJFS from MDPI |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.