Bank profitability in Sub-Saharan Africa: does economic globalization matter?

Abstract

PurposeThis study aims to examine the impact of economic globalization on bank profitability in Sub-Saharan Africa.Design/methodology/approachThe empirical analysis is based on panel data of banks spanning 2008–2016. Relying on the KOF Globalization Index, the study uses financial globalization and trade globalization as measures of economic globalization. The authors employ the system generalized method of moments technique to establish the relationship between economic globalization and bank profitability while controlling for the effect of bank-specific and macroeconomic factors.FindingsThe results show a negative significant effect of financial and trade globalization on bank profitability, signifying the intense competition of banks in Sub-Saharan Africa accelerated by globalization. The negative effect of economic globalization holds irrespective of the indicator of bank profitability. Bank size exerts a significant effect on profitability though the impact is negative for return on equity measure. The findings further reveal a positive significant impact of GDP growth and inflation on profitability.Originality/valueThis paper presents a pioneering work on the impact of economic globalization on bank profitability in the Sub-Saharan African context per the researchers' knowledge.

Determinants of Bank Profitability—Do Institutions, Globalization, and Global Uncertainty Matter for Banks in Island Economies? The Case of Fiji

“…Using data on commercial banks in South Africa over the period 1998-2012, Sufian and Kamarudin (2016 found positive associations of economic integration and trade and a negative association of social globalization with bank profitability. Moreover, for banks in sub-Saharan Africa, Yakubu and Bunyaminu (2022) used financial globalization and trade globalization as measures of economic globalization. They found negative and significant effects of trade and financial globalization on bank profitability.…”

“…Recent studies on bank profitability have extended the analysis to include additional pertinent dimensions, such as globalization and institutions. However, these studies are based on emerging and developed economies with well-developed financial markets (Kanapiyanova et al 2023;Athari and Bahreini 2023;Yakubu and Musah 2022;Yakubu and Bunyaminu 2022;Apergis 2014Apergis , 2019Apergis , 2022Apergis , 2023Apergis and Polemis 2016;Apergis and Lau 2017;Horobet et al 2021).…”

Drivers of Financial Inclusion: Insights from Sub-Saharan Africa

“…Financial globalization shows how the local financial system is integrated with the global financial markets. The financial globalization index is measured on a scale of 0 to 100 where a score closer to 100 shows a greater level of financial globalization (Yakubu and Bunyaminu 2022). Banking sector stability is measured using banks' z-score (Ünvan et al 2022).…”