Nonperforming loans in Sub-Saharan Africa : causal analysis and macroeconomic implications

By H. Fofack. 2005

393 citations recorded by the source corpus.

This paper investigates the leading causes of nonperforming loans during the economic and banking crises that affected a large number of countries in Sub-Saharan Africa in the 1990s. Empirical analysis shows a dramatic increase in these loans and extremely high credit risk, with significant differences between the CFA and non-CFA countries, and substantially higher financial costs for the latter sub-panel of countries. The results also highlight a strong causality between these loans and economic growth, real exchange rate appreciation, the real interest rate, net interest margins, and interbank loans consistent with the causality and econometric analysis, which reveal the significance of macroeconomic and microeconomic factors. The dramatic increase in these loans is largely driven by macroeconomic volatility and reflects the vulnerability of undiversified African economies, which remain heavily exposed to external shocks. Simulated results show that macroeconomic stability and economic growth are associated with a declining level of nonperforming loans; whereas adverse macroeconomic shocks coupled with higher cost of capital and lower interest margins are associated with a rising scope of nonperforming loans. These results are supported by long-term estimates of nonperforming loans derived from pseudo panel-based prediction models.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/5375e2f02f5bfbde02537ce3a9adff6b0f1e4819

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Citations in the corpus

Determinants of Non-Performing Loans: The Case of Eurozone (2014, methodology): “Using unbalanced panel data of 16 countries with a total of 90 observations for the period 1993-2003, Fofack (2005) found that certain micro and macro factors present a positive covariance with non-performing loans, applying a Granger causality analysis and correlations.”
Micro and Macro Determinants of Non-performing Loan (2013, background): “Similar to earlier studies, however, we obtained a significant positive association between nonperforming loans (NPL) and the variable real interest rate (RIR) (Fofack, 2005; Jimenez and Saurina, 2006; Khemraj and Pacha, 2009; Dash and Kabra, 2010).”
Economic Determinants of Non-Performing Loans: Perception of Pakistani Bankers (2012, background): “There is a significant empirical evidence of negative association between growth in gross domestic product and non-performing loans (Louzis, Vouldis and Metaxas 2011, Khemraj and Pasha (2009), Salas and Suarina, 2002; Rajan & Dhal, 2003; Fofack, 2005; and Jimenez and Saurina, 2005).”
Non-Performing Loans in CESEE: Determinants and Impact on Macroeconomic Performance (2013, background): “economy the level of NPLs is likely to increase as unemployment rises and borrowers face greater difficulties to repay their debt (Salas and Suarina, 2002; Rajan and Dhal, 2003; Fofack, 2005; and Jimenez and Saurina, 2005).”
Credit Risk Management and Profitability in Commercial Banks in Sweden (2009, background): “Moreover, Hippolyte F. (2005) advocates that macroeconomic stability and economic growth are associated with declining level of NPLs, while the adverse macroeconomic situation is associated with rising scope of NPLs.”
Determinants of non-performing loans in the banking sector in developing state (2020, background): “Fofack (2005) stated that the leading cause of economic crises in African countries is due to the high level of NPLs in banks.”