Determinants of Credit Risk in the Banking system in Sub-Saharan Africa

Trust Mpofu () and Eftychia Nikolaidou

No 2018-04, School of Economics Macroeconomic Discussion Paper Series from School of Economics, University of Cape Town

Abstract: This paper investigates the macroeconomic determinants of credit risk in the banking system of 22 Sub-Saharan African economies. We measure credit risk as the ratio of non-performing loans to total gross loans (NPLs) and employ a dynamic panel data approach over the period 2000-2016. Using a variety of specifications, the results show that an increase in real GDP growth rate has a statistically and economically significant reducing effect on the ratio of non-performing loans to total gross loans. Furthermore, inflation rate, domestic credit to private sector by banks as a percent of GDP, trade openness, VIX as a proxy of global volatility, and the 2008/2009 global financial crisis, all have positive and significant impact on NPLs.

Date: 2018
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