HOW INSTITUTIONAL FRAMEWORK SHAPES BANK EFFICIENCY IN SUB-SAHARAN AFRICA

Abstract

We investigate whether the institutional framework influences bank ability to perform intermediation in Sub-Saharan Africa (SSA). Applying the stochastic frontier approach to a sample of SSA banks, we find that differences across institutional frameworks largely explain the differences in technical efficiency observed across SSA countries or regional organizations (UEMOA and CEMAC). Overall, the rule of law, the level of contract enforcement, and regulatory quality explain the observed heterogeneity. Reforms that promote the private sector and protect the rights of borrowers and lenders are therefore essential to improve the ability of SSA banks to supply credit.
JEL Classification: G00; G21; G28; G32; F36; N27.