Macroeconomic Determinants of Non-Performing Loans of Deposit Money Banks in Selected African Countries
Keywords:deposit money banks, economic growth, non-performing loans
Over the years, the issue of high non-performing loans (NPLs) amongst deposit money banks (DMBs) in some African countries have tended to act as a drawback to the traditional function of deposit mobilisation and credit creation. This paper examines the determinants of NPLs in eight African countries where data on NPLs are available for the period 2000 to 2016 using a dynamic panel methodology. The panel unit root test results reveals that all the variables used were found to be integrated at order I(1) while the Kao and Pedroni Co-integration tests show that there exist a long run relationship among the variables. The fixed and random effects models as well as the System GMM model suggest significant and positive relationship between NPLs and financial deepening ratio while the relationship between NPLs, Inflation and GDP growth rate were significant but negative. The paper recommends that African banks should be more prudent in managing their loan portfolios especially during periods of banking sector liberalisation and economic growth in order to sustain increase in the flow of credits to the productive sectors of the economy and prevent bank failures.