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The Trade-Off between Banking Outreach And Profitability: Evidence From selected South African Development Countries
Get PDFIn this paper, the fixed effects method known as the least squares dummy variable (LSDV) technique was applied to investigate the possibility of a trade-off between bank profitability indicators and banking outreach (expanding access to banking services) by analysing a panel of 10 South African Development Countries (SADC). Of the fifteen SADC member countries (Angola, Botswana, Democratic Republic Of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, United Republic Of Tanzania, Zambia, and Zimbabwe), five (Botswana, Congo, Lesotho, Malawi and Zimbabwe) had to be excluded for lack of consistent data throughout our period of analysis. The author investigates whether expanding banking access and pursuing profitability are complementary goals in the same direction or are two conflicting goals. For estimation robustness, two indicators of profitability were used namely return on average assets (ROAA) and return on average equity (ROAE). IMF Financial Access Survey (FAS) data for each country namely, deposit accounts per capita and the number of bank branches per 1000 km2 were used as indicators of bank outreach or access. Operational inefficiency, insolvency risk and credit risk were found to exert a negative impact on both ROA and ROE. Net interest margin a proxy for interest based services and off-balance sheet activities were statistically significant and positively related with bank profitability. Central to the study was that expanding banking access was found to exert a statistically significant and positive impact on profitability for some SADC countries. However, contrary to the author`s expectation, for some countries, the indicator of outreach was inversely related with the chosen indicators of profitability. The researcher however, argues that any form of intervention aimed at improving the state of access to those financially excluded cannot be evaluated from a cost or profit perspective alone but must be all-inclusive taking into account the social and economic benefits to the society as a whole. The major purpose of financial inclusion is to reach the poor and disadvantaged segments of the population. Hence, the author cautions that although attaining high profitability is an important policy objective for ensuring sustainability and financial stability, it is certainly not the only priority. Access to banking services, social inclusion and consumer protection are equally important policy priorities. There is therefore need for government support and a general holistic stakeholder approach to the problem of banking exclusion in order to generate solutions that achieve both profitability and outreach in a balanced fashion
Internal Determinants Of Bank Profitability In South Africa: Does Bank Efficiency Matter?
Get PDFIn a study conducted by Ncube (2009) to evaluate bank cost and profit efficiency, it was established that South African banks were more efficient at managing costs than generating profits. In this paper, the aim is to complement this particular work by exploring the internal determinants of bank profitability but with more focus on the impact of bank efficiency. Applying a two step-methodology framework to a panel of four small banks and four large banks for the period 2005-2011, total factor productivity efficiency (TFPE) scores were generated using the DEA methodology. Within the first stage, the intermediation approach was followed in which bank inputs included total operating expenses, labour, fixed assets, and total deposits while interest income, non-interest income and gross loans were considered as output variables. Each bank`s efficiency score for each of the periods was then evaluated based on its distance from the constructed efficiency frontier. In the second stage analysis, the Generalised Least Squares Fixed Effects Model was then performed to examine the impact of TFPE among other internal determinant factors on bank profitability indicators, specifically return on average assets (ROAA) and net interest margin (NIM). The obtained empirical findings showed that high total factor productivity efficiency and capital adequacy lead to higher profitability, while high cost inefficiency, diversification activities, large bank size, and high credit risk leads to lower profitability. Of great importance was that both models confirmed the positive role of attaining efficiency as an important driver of profitability among banks
Do capital requirements affect cost of intermediation? Evidence from a panel of South African Banks
No full textSince the 2007 sub-prime financial crisis, world bank capital ratios have increased. In this paper, we investigate the impact of increased bank capital requirements introduced under the Basel Accord framework on the costs of intermediation. We attempt to answer this central question by running panel regressions using 2001 - 2012 annual bank-level data for ten banks constituting inter alia the four largest South African banks. We conclude that high capital requirements are associated with increased costs of intermediation. Our fixed effects estimations show that a one percent increase in capital requirements lead on average to a range of 12 - 14 basis points increase in the cost of intermediation during our period of analysis. We also find evidence that the Basel II capital requirements effected from 1 January 2008 contributed to increased cost of intermediation by an average 7 basis points for the period 2008 - 2012. We therefore caution that while maintaining adequate capital levels is crucial for obvious reasons, there is need for supervisory authorities to ensure that such regulation is effective and well-balanced to guarantee safety and stability of the sector without endangering the ability of the banks to service the economy
Budget Deficits and Economic Growth: A Vector Error Correction Modelling of South Africa
Get PDFThe primary motivation behind this study was to explore the consequential effects of budget deficit on South Africa`s economic growth. Six variables were used, namely: real GDP, budget deficit, real interest rate, labour, gross fixed capital formation and unemployment. The Vector Error Correction Model (VECM) was used to estimate the long-run equation and also measure the correction from disequilibrium of preceding periods. Using annual time series data spanning the period 1985 to 2015, empirical evidence from the study revealed that budget deficits and economic growth are inversely related. It was therefore concluded that high levels of budget deficit in South Africa have detrimental effects on the growth of the economy. The estimate of the speed of adjustment coefficient found in this study revealed that about 29 per cent of the variation in GDP from its equilibrium level is corrected within one year. The results obtained in this study are favourably similar to those in the literature and are also sustained by previous studies.</jats:p
Merger and acquisitions in South African banking: a network DEA model
Get PDFBanking in South Africa is known for its small number of companies that operate as an oligopoly. This paper presents a strategic fit assessment of mergers and acquisitions (M&A) in South African banks. A network DEA (Data Envelopment Analysis) approach is adopted to compute the impact of contextual variables on several types of efficiency scores of the resulting virtual merged banks: global (merger), technical (learning), harmony (scope), and scale (size) efficiencies. The impact of contextual variables related to the origin of the bank and its type is tested by means of a set of several robust regressions to handle dependent variables bounded in 0 and 1: Tobit, Simplex, and Beta. The results reveal that bank type and origin impact virtual efficiency levels. However, the findings also show that harmony and scale effects are negligible due to the oligopolistic structure of banking in South Africa
An empirical analysis of the impact of external debt and Government debt on economic growth in South Africa : 1970-2015
Get PDFMCom (Commerce and Administration), North-West University, Mafikeng Campus, 2017The management of debt has always been a major concern for many developing countries in the world, including South Africa. Debt is amongst the main macro-economic indicators that provide an image of the country in international markets. This study analyses the relationship between government and external debt on economic growth in South Africa from 1970 to 2015. The study's macro-economic background is examined by reviewing the trends of debt and growth in South Africa. The study reviews the literature on debt and economic growth, where an empirical model linking the theoretical and empirical literature is estimated, making use of the ARDL co integration method. The variables specified in the methodology include gross domestic product (GDP), foreign debt (FD), total loan debt of national government (GD), gross national expenditure (EXP), and gross fixed capital formation (INV). The results obtained by the study indicate that FD and INV have a negative impact on growth, while GD and EXP have a positive impact on economic growth
in South Africa. In order to confirm that the model is in accordance with the classical linear regression assumptions, diagnostic and stability tests were conducted. The ARDL test revealed that there is a co integration relationship between government debt, external debt and economic growth in South Africa. Therefore, it is evident that sound government debt management leads to economic growth and prosperity.Master
Monetary policy dynamics and economic growth in Sub-Saharan Africa : an empirical investigation
Get PDFPhD (Economic and Management Sciences), North-West University, Mafikeng Campus, 2017The broad idea behind this dissertation is to undertake an empirical investigation into the nexus between monetary policy dynamics vis-a-vis growth in Sub-Saharan African countries. Basically, the study empirically seeks to provide answers to four major questions, namely: (i) monetary policy dynamics on growth in SSACs? (iii) What are the dynamic interactions between monetary policy variables and growth and (iv) To what extent do the identified external factors of oil and commodity price volatilities influence monetary policy dynamics in
SSACs? Due to data collection constraints, 36 countries within the four major economic blocs of EAC, CEMAC, ECOWAS and SADC were selected covering a period from 1980-2015 thereby making the residuals both time series and cross sectional in nature. The overall variables of interest as identified in the literature are gross domestic product growth rate, money supply growth rate, exchange rate, inflation rate, interest rate, government expenditures, net domestic credit, oil and commodity price volatilities, and a dummy variable for the global financial crisis. The starting point in the estimation of the models is the use of Exponential
Generalized Auto-regressive Conditional Heteroskedaticity (EGARCH) to examine the asymmetric effects of oil and commodity price volatilities on the economic growth of SSA. Relevant econometric tests such as tests for the stationarity of variables (unit root tests), long run relationship test (test for cointegration), Wald tests and Lag selection criteria were performed in order to avoid the problems of spurious regression and unreliable results. Basically, the study used panel data regressions and the panel results revealed the presence of
cross sectional dependence which necessitated the breaking down of the analyses into individual economic blocs of CEMAC, EAC, ECOW AS and SADC. In order to capture the first objective of the study, the Panel-ARDL approach of cointegration analysis, which most satisfies the outcomes of the unit root tests was employed. The fixed and random effects models supported by dynamic panel model formed the basis of the analysis for objective two. An eightvariable Structural-VAR was employed to generate Impulse Response Functions and Variance Decompositions for the analysis of objectives three and four of the study. Under the first objective, the GDP, which represents output, was confirmed as an important determinant of monetary policy dynamics across the four economic blocs, even though, this was more grounded in SADC and CEMAC where financial deepening is very effective. The second variable investigated, which is money supply growth rate (financial deepening), is found to have a significant impact on monetary policy dynamics in SSA but the effect is more pronounced in SADC, EAC and CEMAC. The findings further underscore the effect of financial deepening or effective money supply in monetary policy effectiveness in SSA. The next variable, which is exchange rate, was confirmed from the results as an important factor that affects monetary policy dynamics across the four economic blocs in SSA. Although it plays different roles across the economic blocs, the impact has generally been shown to be
significant on monetary policy dynamics in SSA. Unlike other variables however, inflation did not display an overwhelming influence as an important variable affecting monetary policy dynamics in SSA as a whole. In spite of this, its effect was found significant in the two largest economic blocs of ECOW AS and SADC. However, government expenditure, net domestic credit and gross capital formation fail to exhibit a noticeable impact as determinants on monetary policy dynamics across all four economic unions in SSA. The result of the impact of
monetary policy variables on the economic growth of SSA shows that the dynamics in monetary policy during the period under review have a significant impact on the economic growth of SSA but this varies from one economic bloc to another. For instance, exchange rate shows a more diverse result as it reveals that its impact is more pronounced in ECOW AS than the other three blocs. The influence of other macroeconomic variables such as inflation rate accounted for significant changes in the economic outlook of SSA with their attendant effects on the relationship between monetary policy and economic growth as well. The results of the dynamic interactions between monetary policy variables and economic growth of SSA show that monetary policy dynamics is greatly influenced by the external shocks from both oil and commodity price volatilities and the transmission mechanism channels indicate that this is passed through the monetary policy rate to exchange rate, and from exchange rate to GDP growth rate in CEMAC. As for the other economic blocs, the medium of transmission is through exchange rate to monetary policy rate and finally to GDP growth rate. Consequently,
the medium of transmission of external shocks to the domestic economies in SSA is exchange rate for ECOW AS, SADC and EAC but in CEMAC, monetary policy rate is the medium of transmission. In summary, expansion of the economic base of the region, increase in domestic output, policy harmonization, import restrictions and improved infrastructural facilities coupled with increased agricultural productivities are some of the proffered policy recommendations for the SSACs.Doctora
Marketing mix: It's role in customer satisfaction in the South African banking retailing
No full textMost South African banks find it difficult or lack the flexibility in adapting to the changing needs of their customers brought by the global financial crisis. This leaves most customers' unsatisfied and possible loss of customers. This paper seeks to inform bank retailers on the role of the marketing mix (4P's) framework as an essential tool in satisfying and retaining their customers in the present recovering stage of the global financial crisis. The authors used questionnaires designed on the 4P's paradigm to determine customers' consensus to its role in satisfying their banking needs. The SPSS software was used in analyzing responds from the survey. Results are presented in a cross tabulation and further illustrated on through a descriptive statistics. Research findings indicated that the marketing mix is an essential tool in satisfying and retaining banking customers. It was also evaluated that price was the most influential element that customers relate to most. Knowledge of the role of marketing mix paradigm in customer satisfaction is that banks may enable policy makers adopting appropriate measures in satisfying their customers. "This paper is important because more researchers have been done on the impact rather than the remedies of the global crisis on the South African banking sector. Pessimists are of the opinion that, the worst case scenario with regard to the global crisis may be merely delayed, thus, it is important to have effective measures in place
A comparative analysis of the determinants of South Africa's export performance in selected SADC countries
Get PDFMCom (Economic), North-West University, Mafikeng CampusIn the international trade market, exports are known as one of the fundamental key players
and are regarded as the driving instrument for every prosperous economy, hence, the National
Development plan of 2030 had made exports the main concern by stating that exports must
increase by 6% in 2030. Therefore, It is crucial to identify the determinants of export
performance since South Africa and SADC economies rely on exports. The primary objective
of the study is investigated as a comparative analysis of the determinants of export
performance in South Africa's and selected SADC countries. The study consist of a balanced
panel of 161 observations consisting of seven countries covering the period from 1992-2014.
The study applied the panel data techniques and incorporated the famous gravity model. In
addition, the study applied the newly FMOLS estimation approach.
The results of the study depict that South Africa's GDP, SADC GDP, distance, exchange rate,
foreign direct investment, openness of trade and land-locked variables in the model are found
to be significant and have an effect on exports performance. However, FDI resulted to be
negative and statistically insignificant. Therefore, since distance is empirically found not to
have an impact on other SADC countries to import in the study, the transport costs of a
specified mode of transport or communication may be considered to replace the distance
variable.
This study recommends that in order to enhance the export performance in South Africa and
selected SADC countries, policy makers should embark on attracting other countries outside
the SADC region to accelerate trading by diversifying their exports, since, openness of trade
is significant to these economies. Moreover, maintaining an effective exchange rate, while,
giving export firms the opportunity of accessing the foreign exchange to obtain the items
needed for the production process which will encourage exports through the competitive
market.Master
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