Bank financing for private sector development in sub-Saharan Africa: Do resilience and spillover effects matter?

Abstract

Abstract The purpose of this study is to highlight the effect of bank resilience and spatial spillover effects on bank financing for the private sector in sub-Saharan Africa. Spatial autocorrelation tests were first performed over the period 2011–2020, followed by parametric tests that allowed the selection of the random-effects Spatial Durbin Model (SDM) as the appropriate technique for estimating the model of bank financing for the private sector in 27 sub-Saharan African countries. The results show that the more resilient banks are, the more incentive they have to extend credit directly to the private sector in the long run. Moreover, endogenous spatial effects through bank lending and exogenous spatial effects through remittances, trade openness, external debt stocks, bank profitability, government spending, and inflation are found in the long run. This means, for example, that an average increase in remittances or trade openness in neighbouring countries stimulates bank credit to the private sector in a given country. Incentives for banks to finance the private sector in the region should focus on building bank resilience, increasing public spending, fighting corruption and inflation at the national level, and limiting external debt. These different policies’ effects must be weighed against the expected positive spillover effects of remittances, trade openness, external debt stocks, bank profitability, and public spending in neighbouring countries. The expected negative effects of inflation must also be taken into account. The study differs from previous studies as it includes spatial spillover effects beyond direct effects. JEL classification : G21, R12, C33, Q56