Journal of Applied Finance & Banking

Determinants of Commercial Banks’ Total Factor Productivity Growth in Sub-Saharan Africa (SSA)

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• Abstract

  The paper investigates the determinants of commercial banks’ total factor productivity growth in Sub-Saharan Africa. The analysis uses an unbalanced panel of 216 commercial banks drawn from 42 countries, spanning the period 1999 to 2006. Using Solows’ Gross Accounting and Decomposition procedure of the production function residual error, the model is estimated by robust panel methods. In the specification, the explanatory variables include growth in bank deposits, growth in other bank earning assets, liquidity ratio, and bank asset quality, as bank level factors; growth in GDP and real exchange rate, as macroeconomic factors. Results show that both bank-level and macroeconomic factors have an influence on banks’ total factor productivity growth in Sub-Saharan Africa. These findings clearly show the importance of both bank level and macroeconomic factors in influencing banks’ total factor productivity growth in Sub-Saharan Africa (SSA). The policy implications drawn from this paper is that if banks are to achieve total factor productivity improvements sustainably, both bank level as well as macroeconomic factors have to be equally taken care of in the planning processes.