The banking sector in sub-Saharan Africa: Privatization, moral hazard, and government regulation

This dissertation addresses the issue of privatization, moral hazard, and government regulation for banking in Sub-Saharan Africa. It investigates the implications of state divestiture from real sectors and banking sectors for lending activities in the countries under review. Then panel-data technique is used to test econometrically the effects of state divestiture and other variables on bank profitability in six countries of the sample. The main findings are that bank profitability is not significantly affected by state divesture, but is sensitive to variables such as volatility in the local economies, market concentration, and financial reforms. However, further research based on an expanded sample is needed to corroborate these results. Within the financial reforms in Sub-Saharan Africa, regulatory innovations have been designed in line with best international practice to address the moral-hazard problem in local banking sectors. At the same time, banks are expected to contribute significantly to finance the development of local private sectors. Initiatives have also been undertaken to foster regional or continental integration. The dissertation examines the consistency of these regulatory innovations and the development-financing concern within a context of regional integration. From a theoretical standpoint, a synthesis model on government regulation for banking remains to be designed. Consensus has not yet been reached among scholars about which imperfection(s) in financial markets primarily justify, government regulation. My approach is rather heuristic. From theoretical and empirical literature on moral hazard in banking, I will critically examine current regulatory practices in Sub-Saharan Africa. Then I suggest bank regulatory and supervisory proposals. Policymaking concerns will prevail rather than optimality.