IMF Working Papers

Benchmarking Banking Sector Efficiency Across Regional Blocks in Sub-Saharan Africa: What Room for Policy?

Author/Editor:

Francois Boutin-Dufresne ; Santiago Peña ; Oral Williams ; Tomasz A. Zawisza

Publication Date:

February 26, 2013

Electronic Access:

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Summary:

This paper examines the determinants of net interest margins in four regional blocks in Sub-Saharan Africa and one comparator block in the Eastern Caribbean. Using bank-level data, we find that countries with a high level of operating costs, a high ratio of equity to total assets and high treasury bill interest rates have higher net interest margins. Moreover, high operating costs are associated with low measures of institutional quality and a small size of bank operations. We find support for the view that market structure is also partly responsible for high net interest margins in Sub-Saharan Africa. If interpreted causally, high operating costs and a high ratio of equity to total assets and, indirectly, institutional factors such as the rule of law, are the most important factors in accounting for high interest margins in the East African Community, relative to other regions.

Series:

Working Paper No. 2013/051

Subject:

Banking Econometric analysis Estimation techniques Financial institutions Financial regulation and supervision Loan loss provisions Loans Stocks Treasury bills and bonds