Do Commercial Banks’ Non-Performing Loans Respond to Environmental Financial and Economic Influences in the Sub-Saharan Region of Africa?


  • Georgina Asemota Benson Idahosa University
  • Moses Akpesiri Erhi Benson Idahosa University
  • Orobosa Ihensekhien Benson Idahosa University


Financial; Non-performing; Sub-Saharan Africa; SYS-GMM


This study investigates the influence of financial and macroeconomic variables on non-performing loans using 27 countries from sub-Saharan Africa. The study sourced data for the period 2012 to 2021. To ascertain financial influences, bank-related variables representing bank operations and bank quality were chosen. For the macroeconomic influences, monetary policy variables and variables representing the macroeconomic conditions were chosen. Based on the preliminary data investigation results and subsequent findings in the course of the study, three estimators- Dynamic Generalized Method of Moments (GMM), System GMM (SYS-GMM) and system Seemingly Unsure Regression (SYS-SUR) - were used to analyze the data. The results confirm that bank quality; monetary policy and bank operations were significant determinants of the variations in non-performing loans in the region. The paper concludes that nonperforming loans do respond to environmental both financial and economic environmental influences. It then recommends that monetary authority should use monetary tools such as interest rates or required reserve ratio instead of the money supply since those tools do not have any impact on NPLs. Strict monitoring of commercial banks is also recommended.


Adusei, C., & Bannerman, J. (2022). A Retrospective Study of Non-Performing Loans of the Ghana Banking Sector between 1998 and 2019. Theoretical Economics Letters, 12, 498-517.

Albanesi, Stefania; De Giorgi, Giacomo; Nosal, Jaromir (August 2017). "Credit Growth and the Financial Crisis: A New Narrative" (PDF). NBER Working Paper No. 23740. doi:10.3386/w23740. S2CID 46994840

Alhassan, A. L., Kyereboah-Coleman, A. & Andoh, C. (2014). Asset quality in a crisis period: An empirical examination of Ghanaian banks. Review of Development Finance 4 (2014) 50–62

Anita, S. S., Tasnova, N., & Nawar, N. (2022). Are non-performing loans sensitive to macroeconomic determinants? an empirical evidence from banking sector of SAARC countries. Future Business Journal, 8(1), 1-16.

Baidoo, T, Yusif, H. & Ayesu, Enock Kojo (2020). Improving loan repayment in Ghana: Does financial literacy matter? Cogent Economics & Finance (2020), 8: 1787693.

Baudino, P.,Jacopo, O., Zamil, R. (2018). The identification and measurement of nonperforming assets: a crosscountry comparison FSI Insights on policy implementation: Bank of International Settlement. No 7.

Bun, M.J.G, & Kiviet, J.F. (2006). The effects of dynamic feedbacks on LS and MM estimator accuracy in panel data models. Journal of Econometrics 132, 409-444.

Central Bank of Kenya (2013) Revised Prudential Guidelines

Central Bank of Nigeria (2010) Revised Prudential Guidelines

Chege, L. K. Omagwa, J & Abdul, f. (2019). Bank Specific Characteristics, Prudential Regulations and Non-Performing Loans of Commercial Banks Listed At Nairobi Securities Exchange, Kenya. IOSR Journal of Economics and Finance. 10(5): 66-79

Chen, J. (2022). A Technical Note on the Arrow Debreu Model

Emmanuel, B., Musa, B.B., & Polycarp, S.U. (2022). Central Bank of Nigeria prudential guidelines and the financial performance of deposit money banks in Nigeria. Accounting and Taxation Review, 6(2): 47-.71

Fofack, Hippolyte. 2005. “Nonperforming Loans in Sub-Saharan Africa: Causal Analysis and Macroeconomic Implications.” World Bank Policy Research Working Paper WPS3769, World Bank, Washington, DC.

Fry, M. J. (1995). Money, Interest and Banking in Economic development. America. The John Hopkins University Press

Gaur, D. & Mohapatra, B. P. (2020). The nexus among economic growth, priority sector lending and non-performing assets: a case of Indian banking sector. 10: 70-90

Gortsos, C. (2021) Non-performing Loans -New risks and policies? IPOL | Economic Governance Support Unit-

Greene, William H. (2012). Econometric Analysis. (Seventh ed.). Upper Saddle River: Pearson Prentice-Hall. pp. 332–344. ISBN 978-0-273-75356-8.

Hanifah, N. (2015). Economic determinants of non-performing loans in Ugandan Commercial Banks. Taylor’s Business Review 5(2): 137-153.

Hayashi, F. (2000). Econometrics. Princeton University Press. ISBN 978-0-691-01018-2.

Hossain, S. (2011) Portfolio Optimization with Asian Hedge Funds: A Comparison between the Mean - Variance and the Polynomial Goal Progamming Methods, SSRN Electronic Journal.

IMF (2021). Resolving Nonperforming Loans in Sub-Saharan Africa in the Aftermath of the COVID-19 Crisis. DP/2021/014

Judson, R.A., & Owen, A.L. (1997). Estimating dynamic panel data models: a practical guide for macroeconomists. Social Science Research Network, 1997, 1-22.

Karayalcin, C., McCollister, K., & Mitra, D. (2002). Infrastructure, Returns to Scale, and Sovereign Debt. The Journal of International Trade and Economic Development. 11 (3): 267-278.

Kennedy, S. E. (1973). The Banking Crisis of 1933. Lexington Kentucky: University Press of Kentucky.

Kiviet, J.F. (2009). Strength and weakness of instruments in IV and GMM estimation of dynamic panel data models.

Koju, L., Koju, R., & Wang, S. (2018). Macroeconomic and Bank-Specific Determinants of Non-Performing Loans: Evidence from the Nepalese Banking System. Journal of Central Banking Theory and Practice, 7, 111-138.

Kurti, L. (2016). Determinants of non-performing Loans in Albania. The Macrotheme Review, 5(1): 60-72

Labra, R. & Torrecillas, C. (2018). Estimating dynamic Panel data. A practical approach to perform long panels. Rev.Colomb.Estad. [online]. 41(1): 31-52.

Lown, C., and D. Morgan. 2001. “The Credit Cycle and the Business Cycle: New Findings Using the Survey of Senior Loan Officers.” Federal Reserve Bank of New York Working Paper.

Mahrous, S. N., Samak, N. & Abdelsalam, M.A.M. (2020). The effect of Monetary Policy on credit Risk. Evidence from the MENA region Countries. retrieved from https://

Mehrabani, A. & Ullah, A. ( 2020). "Improved Average Estimation in Seemingly Unrelated Regressions," Working Papers 202013, University of California at Riverside, Department of Economics, revised Jun 2020

Messai, A. S. & Juini, F. (2013). Micro and Macro determinants of non-performing loans. International Journal of Economics and Financial Issues. 3(4): 852-860

Mitnick,B.M. (1973). Fiduciary rationality and Public Policy. The theory of agency and some consequences. Paper presented at the 1973 annual meeting of America

Morris, F. (1985). India’s Financial System: An overview of its principal structural features. Washington D. C., World Bank, Staff working Paper No. 739

Ogbebor, T. O. & Ighodaro, C. A. (2017).Macroeconomic Determinants of Non-performing Loans of Deposit Money Banks in Selected African Countries. Nigerian Journal of Social Sciences. 13(2).

Rodoni, A., & Yaman, B. (2018). Asymetric Information and Non-Performing Financing: Study inThe Indonesian Islamic Banking Industry. Al-Iqtishad: Jurnal Ilmu Ekonomi Syariah (Journal of IslamicEconomics). Vol. 10 (2): 403 – 416.

Ross, A. (1973). The economic theory of Agency: The principal’s problem. Americaneconomic Review. 62(2): 134-139

Sato, Y & Soderbom, M. (2013). System GMM estimation of panel data models with time varying slope coefficient University of Gotherburg, School of Business, Economics and Law Working papers in Economics no 577

Skarika, B. (2014). Determinants of non-performing loans in central and eastern European countries. finance theory and practice. 38(1): 37-59

Stiglitz, J. E. (1973). Approaches to the Economics of Discrimination. American Economic Review, 62(2), p. 287-295.

Stiglitz, J. E.(1982). Information and Capital Markets, in Financial Economics: Essays in Honor of Paul Cootner, William F. Sharpe and Cathryn Cootner (eds.), Prentice Hall: New Jersey, p. 118-158.

Stiglitz, J. E. (2008). Vanity Fair capitalist fools

Stiglitz, J. E. & Weiss, A.(1981). Credit Rationing in Markets with imperfect information.. American Economic Review, 73(5):912–927

Stiglitz, J. E. & Weiss, A.(1983). Incentive Effects of Terminations: Applications to the Credit and Labor Markets. American Economic Review, 73(5):912–927.

Tseng, W. and Corker, R. (1991). Financial Liberalization, Money Demand and Monetary Policy in Asian Countries. Washington D. C., International Monetary Fund, Occasional Paper No. 84

Uddin, G. (2020). Prudential guidelines and financial system stability in Nigeria. MPRA Paper No. 104964, Online at

Virmani, A. (1985). Government Policy and the Development of Financial Markets. The case of Korea. Washington D. C., World Bank, Staff working Paper No. 747

Wairim, M. M. & Gitundu, E. W. (2017). Macroeconomic Dterminants of non-performing Loans in Kenya. Research Journal of Finance and Accounting. 8(4): 97-105

Zellner, Arnold (1962). An efficient method of estimating seemingly unrelated regression equations and tests for aggregation bias. Journal of the American Statistical Association. 57 (298): 348–368.



How to Cite

Asemota, G., Erhi, M. A., & Ihensekhien, O. (2023). Do Commercial Banks’ Non-Performing Loans Respond to Environmental Financial and Economic Influences in the Sub-Saharan Region of Africa?. Acta Universitatis Danubius. Œconomica, 19(4). Retrieved from



Financial Economics