The dynamic effect of risk management on financial profitability of banks in Africa: An analytical panel quantile regression method

AuthorEmmanuel Kwaku Manu,Isaac Okyere Paintsil,Wen Xuezhou,Isaac Newton Akowuah,Samuel Gyedu
Published date01 October 2020
Date01 October 2020
The dynamic effect of risk management on financial
profitability of banks in Africa: An analytical
panel quantile regression method
Emmanuel Kwaku Manu
| Wen Xuezhou
| Isaac Okyere Paintsil
Samuel Gyedu
| Isaac Newton Akowuah
School of Management, Jiangsu
University, Zhenjiang, China
School of Finance and economics,
Jiangsu University, Zhenjiang, China
Emmanuel Kwaku Manu, School of
Management, Jiangsu University,
Zhenjiang, China.
Wen Xuezhou, School of Business,
Jiangnan University, Wuxi 214122, China.
Funding information
Research Project of The Social Science
Foundation of Jiangsu Province, Grant/
Award Number: 18GLB012; Universities
of Jiangsu Province, Grant/Award
Number: 2018SJZDA006
The main goal of the study is to investigate the integration of financial indica-
tors (bank credit, capital asset, non-performing loans, and liquidity) in the
banking sector can bring macroeconomic benefits to the economies of Africa.
This article highlights the performance of framework employed by Brzoza-
Brzezina and Makarski in a small open economic system with two types of
financial frictions. The dataset comprises 13 banks in Africa for the period
20002016. We estimated our model by way of the usage of system GMM
approach and panel quantile regression technique in which the data was
grouped into Northern and Southern Africa. We explore the result of credit
apportionment of Banks in the crisis period for African countries. We confirm
that both groups of variables have significant influence on credit risk.
Although we provide evidence that the marginal effect is stronger for bank
credit and non-performing loans than bank liquidity indicating that in North-
ern Africa countries financial profitability will increase more as a result of
increasing bank credit and non-performing loans than bank liquidity.
Bank credit, credit risk management, financial profitability, panel quantile regression,
system GMM
C58; G20; G28; G29
All assumptions, particularly the hypothesis of financial
investment, certainly reveal that there is some connec-
tion among liquidity and credit risk. A developing assort-
ment of writing, particularly after subprime monetary
emergency, underlines the positive connection between
these two dangers (Allen & Carletti, 2008; Cornetta,
McNuttb, Strahanc, & Tehraniand, 2011; Gefang, Koop, &
Potter, 2011; Imbierowicz & Rauch, 2014). Imbierowicz
and Rauch (2014) look at the relationship between liquid-
ity and credit risk in US banks for the time of 19982010.
They locate a powerless and positive interrelationship of
liquidity and credit risk utilizing bank explicit measures.
Cornetta et al. (2011) contend that financial emergency
dwindled liquidity from the market. They separate banks
into two classifications: (a) banks, having stores and
value capital money as center wellspring of subsidizing,
Received: 12 March 2020 Revised: 20 July 2020 Accepted: 24 July 2020
DOI: 10.1002/jcaf.22469
J Corp Acct Fin. 2020;31:99120. © 2020 Wiley Periodicals LLC 99
keep on loaning more when contrasted with different
banks and (b) banks, having more illiquid resource,
lessen loaning to expand their liquidity. In conclusion,
banks, in dealing with their liquidity hazard, drive them
to diminish credit supply which brings about diminishing
the credit chance. This likewise shows co-positive devel-
opment of the two dangers.
There are a few examinations breaking down the
effect of liquidity risk on bank security (Almarzoqi,
Naceur, & Scopelliti, 2015; Beck, DemirgüçKunt, &
Merrouche, 2013; Čihák & Hesse, 2010; Cornetta
et al., 2011; Wagner, 2007). Wagner (2007) contends that
liquidity hazard has negative effect on bank steadiness.
Higher fluid resources, at first, improve the security of
the bank and make emergency less exorbitant. Subse-
quently, the bank begins facing challenge to build pro-
ductivity, which off-sets the underlying positive effect
and increment bank unsteadiness. Cornetta et al. (2011)
find that banks, with high illiquid resources, increment
their liquidity and abatement loaning during budgetary
emergency. Almarzoqi et al. (2015) report comparative
finding while Čihák and Hesse (2010) find no connection
between liquidity hazard and solidness for bigger IBs
however huge negative relationship is watched for little
The worldwide financial emergency has put center
around the difficulty of the universal transmission of
financial stuns through global banks. The essential
inquiry following the emergency was as per the follow-
ing: will the outside banks diminish credit supply in their
host nations in view of the issues in the nations of origin
and their asset reports? Various exact papers confirm the
effect of the macroeconomics in the nation of origin and
parent bank qualities on the credit supply of nations
(Allen, Jackowicz, & Kowalewski, 2013; Arakelyan, 2018;
Cetorelli & Goldberg, 2012; de Haas & Horen, 2013; de
Haas, Korniyenko, Pivovarsky, & Loukoianova, 2012; de
Haas et al., 2014; de Haas, Korniyenko, Pivovarsky, &
Tsankova, 2014; Ongena, Peydro, & van Horen, 2013;
Popov & Udell, 2012; Temesvary & Banai, 2017). Profit-
ability and liquidity from parent bank specifics and GDP
development from home macroeconomics were identified
as the primary determinants of credit supply in have
The capability of the market for financial branches
for use in administration stays hidden. Constrained risk
the managers leaves financial grounds, firms, and fami-
lies more presented to stuns than they could be and is
apparently a key factor in financial emergencies. Why
the increases from utilizing exchanged protections for
risk the board are abused to such a restricted degree stays
a focal open inquiry. To address this inquiry, we study
the determinants of hazard the board in the
quantitatively biggest market for such instruments the
loan fee subsidiaries advertise in which the principal
members are financial organizations. We center on the
financial mediator area for a few reasons. To start with,
despite a lot of discussion about bank chance administra-
tion and its disappointment during the financial emer-
gency, even the essential examples of hazard the
executives in financial foundations are not known and its
fundamental determinants are not surely known. Second,
financial organizations assume a key job in the full-scale
economy and for the transmission of fiscal arrangement.
Understanding their introduction to loan costs stuns and
the degree to which they do or do not support these expo-
sures is consequently basic for money related and full-
scale prudential arrangement. Third, financial delegates
are the biggest clients of subsidiaries, estimated as far as
gross notional exposures, and loan cost subordinates
include the heft of such exposures.
Simultaneously, banksnon-performing loans (NPLs), in
many nations expanded significantly, and specialists began
to research the determinants of NPLs. The consequences of
observational examinations confirm the presence of three
gatherings of determinants of credit hazard: bank-specific,
bank industry-specific and macroeconomic (Agoraki,
Delis, & Pasiouras, 2011; Bock & Demyanets, 2012;
Jakubík & Reininger, 2013; Skarica, 2014; Tanaskovi
c, 2015). Regardless of the developing writing on the
job of remote banks in the credit supply in many nations
and determinants of NPLs, inquire about that considers the
credit danger of outside banks has been uncommon
(Geršl, 2007; Haselmann & Wachtel, 2007; Havrylchyk &
Jurzyk, 2011). Their general decision is that outside banks
have lower NPL levels. To experimentally explore our explo-
ration question, we developed an informational index that
covers a board of 13 nations and their parent banks in
Africa. Past research in many nations has considered three
gatherings of credit chance factors: bank-specific, macroeco-
nomic determinants, and bank industry-specific determi-
nants. We assessed our model by utilizing board PVAR and
board quantile technique where the informational collection
was group into Northern Africa and Southern Africa.
Our paper adds to the existing literature in some
First, we exalted the literature regarding credit risk in
African countries. To the best of our knowledge, this is
first research that considered new groups of variables for
country-owned banks in Africa: parent bank specifics
and the macroeconomics of the parent bank. However,
several previous studies tried to investigate the role of for-
eign bank ownership (Agoraki et al., 2011; Cerutti, Ilyina,
Makarova, & Schmieder, 2010; Drakos, Kouretas, &
Tsoumas, 2016; Maechler, Mitra, & Worrell, 2007; Män-
nasoo & Mayes, 2009; Uiboupin, 2005) by including the

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