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Banking Activity Sensitivity to Macroeconomic Shocks and Financial Policies Implications: The Case of CEMAC Sub‐region
Author(s) -
Nguena Christian Lambert,
Nanfosso Roger Tsafack
Publication year - 2014
Publication title -
african development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.654
H-Index - 32
eISSN - 1467-8268
pISSN - 1017-6772
DOI - 10.1111/1467-8268.12067
Subject(s) - interest rate , economics , shock (circulatory) , credibility , monetary economics , exchange rate , margin (machine learning) , monetary policy , per capita , macroeconomics , financial system , demography , machine learning , sociology , political science , medicine , population , law , computer science
This paper aims to assess qualitatively and quantitatively the level of resilience of the financial sector in the CEMAC sub‐region to macroeconomic shocks and highlight the financial policies that could be implemented. For this purpose, a descriptive analysis of the CEMAC sub‐region banking sector, followed by a panel‐based econometrics study has been undertaken. The main result from the analysis is that the banking sector of CEMAC is relatively vulnerable to macroeconomic shocks. Accordingly, the decrease of GDP per capita growth rate, long‐term financing and real exchange rate as well as the increase of interest rate leads to lower bank provisions. Lower levels of short‐term financing induce a lower level of net income commission, while the change in interest rates is an increasing factor. The influence of changes in interest rates on bank's interest margin remains ambiguous. These results confirm the necessity of taking into account the existence of macroeconomic shock constraints in the implementation of financial policies in the sub‐region. The paper is original in the manner that it bridges some knowledge gaps of shock management in the monetary zone. It offers policymakers two main insights: the potential rewards for timely intervention to mitigate potential shocks and the need for better control for the credibility and sustainability of the banking system.