The Impact of Changes in Basel Capital Requirements on the Resilience of African Commercial Banks

Abstract

Focusing on a panel sample of 41 commercial banks over the period of 2000-2018, this study examined the effect of capital adequacy on the resilience of commercial banks in Africa under changing Basel levels (II, III, and the proposed Basel IV). The study created sample representative banks for the proposed Basel IV and used two measures, namely Z-score and CAMELS, to capture bank resilience. Using the panel logistic regression and fixed effect model, we found that capital adequacy, liquidity, earnings management efficiency, and macroeconomic conditions are key determinants of the resilience of commercial banks in Africa. Additionally, Basel compliant banks tend to be less prone to macroeconomic factors. Based on the positive and significant impact of all Basel capital ratios on Zscore, the results suggest that a high level of capital requirements increases African banks' resilience, and banks with higher capital can absorb risk exposures.

The Impact of Financial Inclusion on Banking Stability- An Analytical Study in the Iraqi Banking Sector

“…During this period, most central banks proposed an increase in capital adequacy as a requirement for building stability in the banking industry (Sulemana et al, 2018). To the best of the researcher's knowledge and information, several authors and researchers have concurred, including (Chouhan et al, 2014;Mutarindwa et al, 2020;Oyetade et al, 2022;Yunita, 2022). They used the Z-SCORE indicator to measure banking stability.…”

“…Most of these studies focused on cases of bank failures during the financial crisis, increasing interest in the Z-SCORE indicator from earlier times (Mugo, 2021). (Syed et al, 2022) emphasized that the Z-SCORE indicator is important in achieving banking stability, a point reiterated by (Oyetade et al, 2022). Z-Score is a measure used to predict bank failure or financial distress and is a common measure of banking resilience, assessing the extent to which a bank's capital can cover losses resulting from variations in returns without going bankrupt.…”