Predicting the Risk of Bank Deterioration: A Case Study of the Economic and Monetary Community of Central Africa
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Date
2013-01
Authors
Kouezo, Barthélemy
Koulet-Vickot, Mesmin
Yamb, Benjamin
Journal Title
Journal ISSN
Volume Title
Publisher
AERC
Abstract
Preventing bank failures is one of the fundamental concerns of decision-makers and it
justifies the existence of banking supervision authorities. That is why bank supervisors
have put in place measures aimed at enabling them to detect banks’ difficulties early
enough. The aim of the present study was to put forward an autoregressive logistic
model of bank deterioration that could be used in countries in the CEMAC area as an
early warning system (EWS). As explanatory variables, the model uses the financial
variables that make up credit rating systems, the efficiency scores obtained using Data
Envelopment Analysis as a proxy of management quality, shareholding, and the GDP
growth rate; and as economic environment variables, it uses the inflation rate and the
real effective exchange rate. The model also takes into account country effects. Although
the simulations carried out in this study revealed that the model was less effective when
used on out-of-sample data, the study still came up with a new typology of banks. For
example, it found that a bank would be considered solid if the model had predicted it to
be solid and its observed state was indeed solid at the predicted date. Such a typology
makes it possible to use the results of the model by combining the model’s prediction
with the evolution of the situation of the bank in question. A refinement of this new
typology can enable a better orientation of the bank supervision authority’s prompt
corrective action so as to prioritize the actions to be taken and to adapt them to the
specific difficulties of each bank.
Description
HG 3409 .A6 K 68 2018
Keywords
Bank failures - Africa central , Africa Central