THE IMPACT OF MONETARY POLICY ON BANK BALANCE SHEET VARIABLES IN SUB-SAHARAN AFRICA: EVIDENCE FOR A BANK LENDING CHANNEL
ACKIM, MPHATSO ELIAS
university of Malawi
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.