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Bank stability in South Africa: what matters?

Authors :
Syden Mishi
Sibanisezwe Alwyn Khumalo
Source :
Banks and Bank Systems, Vol 14, Iss 1, Pp 122-136 (2019)
Publication Year :
2019
Publisher :
LLC CPC Business Perspectives, 2019.

Abstract

The study examined the determinants of bank stability within the South African banking sector. By controlling for individual bank characteristics and market characteristics, the study determined possible determinants of solvency, a proxy for bank stability, measured by z-score within the South African financial sector. The South African financial sector is highly concentrated but with a significantly large number of banks, the greater portion being foreign owned banks. The business models of some of the financial intermediaries differ from the big four and therefore the influence of the type of business model is of great interest in this study, as it highlights a unique feature of the South African financial sector. The study’s investigation used panel data estimation techniques and found that among the specific bank characteristics, lending activity and capitalization do significantly affect solvency of banks and at sector level concentration was significant. The crisis dummy also revealed that the presence of a financial crisis heightened insolvency. The results have implications for financial institutions and therefore are of interest to regulators, bank management and researchers. Policy prescription in the form of Prompt Corrective Action framework is made to ensure proactive reaction to trends likely to cause instability.

Details

ISSN :
19917074 and 18167403
Volume :
14
Database :
OpenAIRE
Journal :
Banks and Bank Systems
Accession number :
edsair.doi.dedup.....93aa1c79f13b93ad3919a66db3b08f3b
Full Text :
https://doi.org/10.21511/bbs.14(1).2019.11