What drives bank lending? A closer look at bank lending types in Africa

Abstract

PurposeIn this study, the authors present unique evidence on bank lending types by paying particular attention to the factors that drive the different types of bank lending in Africa using bank level data.Design/methodology/approachIn presenting such evidence, the study employs a robust fixed effect panel data with year and technological controls comprising 57 banks from 29 African economies between 2006 and 2015.FindingsThe results show that different factors affect different bank lending types differently in Africa. Specifically, while the authors find that total or aggregate bank lending is positively driven by bank capitalization and spread but negatively driven by bank size, corporate and commercial bank lending is positively driven by bank size, spread, inflation, elections and extent of business disclosure but negatively driven by bank capitalization, loan loss reserves, operational cost and gross domestic product per capita. Moreover, interbank lending is both negatively and positively driven by bank capitalization and size, respectively, while other bank lending type is driven positively by financial crisis but negatively driven by bank size, inflation and extent of business disclosure. Finally, retail and consumer lending is positively driven by bank capitalization, loan loss reserves and spread while negatively driven by bank size and inflation.Practical implicationsThese imply that bank managers, regulators, policymakers and researchers must begin to see each bank lending category separately and independently since varying factors influence the different categories of bank lending differently.Originality/valueThe study presents new insights into how different factors determine different lending types in Africa for the first time to the best of the authors’ knowledge.