Do competition, regulation and stability matter for efficiency in Sub-Saharan African banking sectors?

Figures & data

Table 1. Research hypothesis for analysis

Objectives to be analysed	Variables	H0	Selected references
Regulation on efficiency	Capital on efficiency	H0 = 0	Gap
	Liquidity on efficiency	H0 = 0	Gap
	Asset quality on efficiency	H0 = 0	Gap
Competition on efficiency	Lerner index on efficiency	H0 = 0	Fungáčová et al. (2013), Hussain and Hassan (2012)
	Interest rate spread on efficiency	H0 = 0	Gap
Efficiency on regulation	Efficiency on capital	H0 = 0	Gap
	Efficiency on liquidity	H0 = 0	Gap
	Efficiency on asset quality	H0 = 0	Berger and Mester (1997)
Efficiency on competition	Efficiency on Lerner index	H0 = 0	Fungáčová et al. (2013)
	Efficiency on interest rate spread	H0 = 0	Apriadi et al. (2016)
Efficiency on stability	Efficiency on Z score	H0 = 0	Apriadi et al. (2016), Petersen and Rajan (1995)
Stability on efficiency	Z score on efficiency	H0 = 0	Apriadi et al. (2016)

Source: Author’s review^a, 2018.

^aIdentified number of gaps is, to the best of our knowledge, based on the reviewed literature.

Table 2. Data and variable description

Variables	Description	Data requirement	References
CAP	Ratio of equity to total assets	Equity capital, total assets	Agoraki, Delis, and Pasiouras (2011); Matutes and Vives (2000); Repullo (2004); Casu et al. (2015); etc.
LIQ	Ratio of banks’ liquid assets to depreciation and short-term funds	Liquid assets, depreciation, short-term funds	Moyo et al. (2014)
ASQ	Measured as loan loss reserves to net loan assets	Loan loss reserve, net loan assets	Moyo et al. (2014)
LERNERI	Measure of bank market power signifying a bank’s ability to charge price above its marginal cost	Total assets, total revenue, personal costs, interest expenses, non-interest expenses, total deposits and fixed assets, among others	Kouki and Al-Nasser (2014); Berger, Klapper, and Turk-Ariss (2009); Liu, Molyneux, and Wilson (2013); Soedarmono, Machrouh, and Tarazi (2013); Jim´Enez, Lopez, and Saurina (2013)
IRS	Differences in rates paid for loan and those earned on deposits	Interest rate, deposit rates	Demirguc-Kunt, Laeven, and Levine (2003); Laeven and Majnoni (2005)
EFS	Efficiency estimated using stochastic frontier analysis (SFA)	Total assets, pre-tax income	Coelli, Rao, O’Donnell, and Battese (2005); Coelli and Rao (1998); Chiou and Porter (2015); Barro and Barro (1990)
Z SCORE	Measure of stability indicating the likelihood of a bank becoming bankrupt	Return on assets, total assets, equity capital	Roy (1952); Kouki and Al-Nasser (2014); Cihak, Demirgu¨c¸-Kunt, Mart´Inez Per´Ia, and Mohseni-Cheraghlou (2012); Lepetit and Strobel (2013); Laeven and Levine (2009)

CAP: regulatory capital; LIQ: liquidity reserve; ASQ: asset quality; LERNERI: Lerner index; IRS: interest rate spread; EFS: efficiency score.

Note: Authors’ summary of data requirements of variable used and selected lists of authors that have made use of them.

Table 3. Summary statistics

Year	N	Mean	Efficiency scores SD	Minimum	Maximum	Capital	Liquidity	Asset quality	Lerner index	IRS	Z score
2006	190	0.9632438	0.0140684	0.870781	0.994005	0.1611557	0.470746	0.0139041	0.2556606	0.0701743	3.54343
2007	215	0.9611767	0.0181079	0.827363	0.991486	0.1441192	0.4439588	0.0153758	0.2693673	0.0702588	3.204579
2008	250	0.962111	0.0147257	0.863255	0.992549	0.1568832	0.3978305	0.0160256	0.2884124	0.0752672	3.380152
2009	275	0.958097	0.0255113	0.725649	0.993675	0.150284	0.4420819	0.021476	0.293903	0.0758463	3.29502
2010	296	0.9552949	0.0347272	0.657274	0.992596	0.1563837	0.4201964	0.0241048	0.2959335	0.0743105	3.273991
2011	320	0.9558327	0.0243512	0.743578	0.987884	0.139725	0.3727514	0.0221538	0.2821636	0.0725276	2.988873
2012	357	0.9566049	0.0227261	0.784277	0.994129	0.1542496	0.3743644	0.0210687	0.3237032	0.0736195	3.235099
2013	392	0.9559925	0.0220384	0.753375	0.993804	0.170136	0.4193003	0.0221185	0.3520863	0.0722735	3.403835
2014	430	0.9549598	0.0283397	0.660818	0.995555	0.1810446	0.3973395	0.0226412	0.3318136	0.0916671	3.624344
2015	440	0.954971	0.0224235	0.681551	1.00000	0.1704147	0.3809	0.0260906	0.3243521	0.0804629	3.484

SD: standard deviation; IRS: interest rate spread; SFA: stochastic frontier analysis.

Source: Authors’ computation, 2018.

Note: Columns 2–6 on the table relate to efficiency scores generated using SFA and then the mean of other variables.

Figure 1. Impulse responses of efficiency.

Figure 2. Impulse responses to efficiency.

Table 4. Variance decomposition of efficiency

Period	Standard error	Capital	Liquidity	Asset quality	Lerner index	Interest rate spread	Efficiency	Stability
$4$	$0.012370$	$7.685921$	$0.022868$	$0.000645$	$0.026200$	$0.002886$	$92.26139$	$9.14E-05$
$8$8	$0.014644$	$6.549961$	$0.079695$	$2.917262$	$0.036139$	$0.006040$	$90.39019$	$0.020715$
$12$12	$0.015784$	$6.337248$	$0.196785$	$3.048439$	$0.116330$	$0.005291$	$90.27414$	$0.021762$
1$16$	$0.016407$	$6.236244$	$0.349491$	$3.399150$	$0.232502$	$0.004959$	$89.75433$	$0.023326$
$20$20	$0.016761$	$6.193195$	$0.488903$	$3.566373$	$0.391819$	$0.005096$	$89.33045$	$0.024169$
2$24$	$0.016972$	$6.167736$	$0.605381$	$3.683419$	$0.583340$	$0.005464$	$88.92998$	$0.024684$

Figure 3. Efficiency variance decomposition bar chart.

Table 5. Static and dynamic panel regressions

	Model 1	Model 2	Model 3	Model 4
	Pooled OLS	FE regression	RE regression	GMM regression
Variables	Efficiency	Efficiency	Efficiency	Efficiency
L.efficiency				0.115*** (0.04)
Capital	−0.436*** (90.00687)	−0.417*** (0.00894)	−0.431*** (0.00782)	−0.395*** (0.0382)
Liquidity	0.00295*** (0.000711)	0.00160** (0.000718)	0.00133** (0.000673)	0.00675*** (0.0026)
Asset quality	−0.0216*** (0.00534)	−0.0146*** (0.00486)	−0.0135*** (0.00465)	−0.0498* (0.03)
Lerner index	−0.000370*** (0.0000982)	−5.12E−05 (0.00012)	−8.00E−05 (0.000115)	−0.000237*** (0.0000724)
IRS	−0.00184 (0.00191)	0.0428*** (0.00793)	0.000931 (0.00243)	0.0287*** (0.0109)
Z score	0.0222*** (0.000325)	0.0215*** (0.000391)	0.0221*** (0.000344)	0.0204*** (0.00197)
Constant	0.950*** (0.00045)	0.946*** (0.000797)	0.950*** (0.000838)	0.837*** (0.0382)
Observations	2695	2695	2695	2355
R^2	0.694	0.691
Number of id		409	409	403
F/Wald stats	1014.19	849.68	5776.84	1628.45
Probability	0.000	0.000	0.000	0.000

Source: Authors’ computation, 2018.

Notes: Corrected/standard errors are in parentheses and for the GMM its robust standard error; probability values: ***p < 0.01, **p < 0.05, *p < 0.1; 3 to 3 lags used as instruments; adjusted R² probability—0.435; Hansen J statistics—0.766; no. of instruments—86.

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