THE IMPACT OF MONETARY POLICY ON BANK BALANCE SHEET VARIABLES IN SUB-SAHARAN AFRICA: EVIDENCE FOR A BANK LENDING CHANNEL
Date
2016-09-10
Authors
ACKIM, MPHATSO ELIAS
Journal Title
Journal ISSN
Volume Title
Publisher
university of Malawi
Abstract
The present study investigates the impact of monetary policy on bank balance
sheet variables in sub-Saharan Africa (SSA) to test the existence of a bank lending
channel. Specifically, the study examines if the interaction of real interest rates and
capitalization reduce bank deposits, credit supply, and liquid assets. The study covers 31
SSA countries during the 2000 to 2014 period and groups the countries as Southern
African Development Community (SADC), Economic Community of West African
States (ECOWAS), Economic and Monetary Community of Central Africa (CEMAC),
East African Community (EAC), and countries not grouped (Others). Using the data from
these countries, the study estimates dynamic panel data models by means of system
GMM methodology, and it shows that the results are group-dependent. Real interest rates
significantly reduce bank deposits in ECOWAS, CEMAC, and EAC, while the
interaction of real interest rates and capitalization significantly reduce bank credit in SSA
and all the economic blocs. Nevertheless, the interaction of real interest rates and
capitalization significantly reduce bank liquid assets only in SADC, ECOWAS, CEMAC,
and EAC. Thus, the outcome of the study presents a strong case for the existence of a
bank lending channel for some of the regional groupings in SSA. In this light, the most
relevant implication of the study is that common monetary policy for CEMAC and
proposed ones for EAC and ECOWAS may notably be transmitted through a bank
lending channel to the economies of member states.