Profitability, Ownership, Risk, and Deposit Insurance of Commercial Banks in Africa

Evans Darko (), Nadia Zedek () and Gervais Thenet ()
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Evans Darko: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique, IGR-IAE Rennes - Institut de Gestion de Rennes - Institut d'Administration des Entreprises - Rennes - UR - Université de Rennes
Nadia Zedek: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique
Gervais Thenet: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique

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Abstract: The paper empirically examines the relationship between profitability, ownership structure, bank risk (Z-score), and deposit insurance schemes in African commercial banks. Using the Generalized Method of Moments (GMM) and Fixed Effects (FE) estimation techniques with sample data of 141 banks in 19 African countries from 2009-2020.The study presents four key findings, first, foreign ownership decreases bank return on equity (ROE), while state ownership enhances it. Second, a higher Z-score enhances bank stability, reduces risk, and increase profitability. Third, Deposit insurance negatively impacts profitability and increases risk in the short term. However, explicit deposit insurance could enhance profitability by 0.6% in the long run. Finally, bank capitalization, size, asset composition, and macroeconomic factors (GDP, inflation) are critical determinants of profitability in Africa. Policymakers should consider these factors when designing policies to enhance banking sector stability and growth, including the adoption and implementation of explicit deposit insurance in Africa.

Keywords: African banking; Profitability; Ownership; Deposit Insurance Schemes; Z-Score (search for similar items in EconPapers)
Date: 2025-02-12
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Published in Southwestern Finance Association, Feb 2025, San Antoni, Texas, United States

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05032058

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