Abstract

This study assess banking sector stability in Sierra Leone using quarterly data over the period 2009-2019 of the fourteen banks in the sector. The study was carried out in the context of Johansen Cointegration estimation technique and it was found out that in the long run, total bank assets, gross loans positively influence banking sector stability whilst exchange rate had negative effect on banking sector stability. In the short run, total banking assets was also found to have a positive and statistically significant relationship. Arising from the
aforementioned estimation results, this study recommends that banks transition to Basel three Capital Framework which is forward looking that shore up the stability of the banking sector and makes provisions for risks that will emanate in the banking realms of Sierra Leone. This is turn will facilitate smooth banking operations and fortifies public confidence in the banking sector.

Keywords

  • Banking Sector Stability

References

  1. Adu, G, Marbuah G and Mensah J (2013). Financial development and economic growth in Ghana: Does the measure of financial development matter? Review of Development Finance 193–202.
  2. Aerdt H, Jan K and Garry S, (2004). "Towards a framework for financial stability," DNB
  3. Occasional Studies 201, Netherlands Central Bank, Research Department.
  4. Allen, F. and Gale, D. (2004) Competition and Financial Stability. Econometrica, 72, 1024-1060
  5. Ayadi, R. (2009). Causality, In Foreign Direct Investment and Economic Growth in Nigeria.
  6. Repositioning African Business and development for the 21st Century Simeon Sigue (Ed).
  7. Proceedings of the 10th Annual Conference. IAABD.
  8. Ayadi, R, Arbak E, Schmidt R.S, Carbó V.F and Rodriguez F (2009), Investigating Diversity inthe Banking Sector in Europe: The Performance and Role of Savings Banks, Centre for European Policy Studies (CEPS), Brussels
  9. Ayadi, R., Llewellyn, D.T., Schmidt, R., Arbak, E., and De Groen,W. (2010). Investigating
  10. Diversity in the Banking Sector in Europe: Key Developments, Performance and Role of Cooperative Banks. Centre for European Policy Studies, Brussels.
  11. Beck, T, Demirgüç-Kunt, A and Levine R. (2007). "Finance, Inequality and the Poor," Journal of Economic Growth 12(1): 28–48.
  12. Beck, T., De Jonghe, O. and Schepens, G., (2013). Bank competition and stability: cross-country heterogeneity. “Journal Finance Intermediation” .22 (2), 219–243.
  13. Beck, T., Demirgüç-Kunt, A. and Levine, R., (2006). Bank concentration, competition, and crises: “Journal of Banking and Finance”. 30 (5), 1582–1602.
  14. Berger, A., Klapper, L., and Turk Ariss, R., (2009). Bank competition and financial stability.
  15. “Journal of Financial Services Research. 35 (2), 100–117.
  16. Boyd, J (2005). Exploring Financial Risks and Vulnerabilities in New and Potential EU Member States - Scientific Figure on Research Gate.
  17. Boyd, J, and Runkle D. (1993). “Size and Performance of Banking Firms: Testing the Predictions
  18. of Theory,” Journal of Monetary Economics 31: 48–66.
  19. Brave, A. and Butters, R. (2011), Monitoring Financial Stability: A Financial Conditions Index
  20. Approach. Economic Perspectives, Vol. 35, No. 1, p. 22&23, 2011. 36
  21. Casu, B. and Girardone, C., (2009). Testing the relationship between competition and efficiency in banking: a panel data analysis. “Journal of Economic Letters”. 105 (1), 133–136.
  22. Bank of Sierra Leone, Financial Stability Report (2017), Freetown
  23. Charles, W. and Matthew J, (2016). "Deposit Insurance: Theories and Facts," NBER Working
  24. Papers 22223, National Bureau of Economic Research, Inc.
  25. Chude, N and Chude, D (2014). The Relationship Between Regulatory Inconsistencies and
  26. Nigerian Banking Industry. Global journal of Management and Business Research.
  27. Volume 14 Issue 4 Version 1.0
  28. Cihák, M and Schaeck, K, (2010). "How well do aggregate prudential ratios identify banking
  29. system problems?" Journal of Financial Stability, 6(3): 131-143.
  30. Čihák, M, and Heiko, H. (2010). "Islamic Banks and Financial Stability: An Empirical Analysis",
  31. Journal of Financial Services Research, 38 (2-3): 96–112.
  32. Čihák, M, Demirgüç-Kunt, A, Feyen E, and Levine R. (2012). “Benchmarking Financial
  33. Development Around the World.” Policy Research Working Paper 6175, World Bank,
  34. Washington, DC.
  35. Čihák, M. (2007). “Systemic Loss: A Measure of Financial Stability” Czech Journal of Economics
  36. and Finance, 57 (1-2): 6-25.
  37. Dai-Won K, Jung-Suk Y and Kabir H, (2018). "Financial inclusion and economic growth in OIC
  38. countries," Research in International Business and Finance, Elsevier, vol. 43(C), pages 2-13.
  39. Demirgüç-Kunt, A & Detragiache E, (1997),"The Determinants of Banking Crises inDeveloping and Developed Countries," IMF Staff Papers,45:82-108.
  40. Demirgüç-Kunt, A, Detragiache, E and Tressel, T. (2008). "Banking on the Principles: Compliance with Basel Core Principles and Bank Soundness," Journal of Financial Intermediation
  41. (4): 512–41.
  42. Enebeli, E and Ifelunini, A (2019). Assessment of Nigeria’s Financial Services Sector Stability and Diversity. African Economic Research Consortium
  43. Fadare, S. O (2010). Recent Banking Sector Reforms and Economic Growth in Nigeria. Middle
  44. Eastern Finance and Economics. Issue 8,146-160
  45. Frait, J and Komarkova, Z (2011). "Financial Stability, Systemic Risk and Macroprudential Policy," Occasional Publications - Chapters in Edited Volumes, in: CNB Financial
  46. Stability Report 2010/2011, pages 97-110 Czech National Bank
  47. Frait, J and Komarkova, Z, (2012). "Macroprudential Policy and Its Instruments in a Small EU
  48. Economy," Research and Policy Notes 2012/03, Czech National Bank
  49. Girardone, C., Nankervis, J.C., and Velentza, E., (2009). Efficiency, ownership and financial structure in European banking. “Journal of Management and Finance”. 35 (3), 226–244.
  50. Consumption and Economic Growth in Turkey. EconWorld2017@Paris Proceeding, July
  51. -27, 2017; Paris, France. Pg 1-10.
  52. Guvenen, F and Anthony J. (2013). Inferring Labor Income Risk and Partial Insurance fromEconomic Choices. Econometrica. 82. 10.2139/ssrn.2270897.
  53. Iannotta, G., Nocera, G., and Sironi, A., (2007). Ownership structure, risk and performance inthe European banking industry. “Journal of Banking and Finance”. 31 (7), 2128–2148.
  54. Ibrahim, M and Alagidede, P, (2018). "Effect of financial development on economic growth in sub-Saharan Africa," Journal of Policy Modeling, Elsevier, vol. 40(6), pages 1105-1124.
  55. Jackson, E. A., Barrie, M. S., & Johnson, L. (2021). Impact of Exchange Rate and Inflation on Commercial Banks’ Performance in Sierra Leone. Journal of Smart Economic Growth, 6(3), 68-94.
  56. Jackson & Tamuke(2022) “Credit Risk Management and the Financial Performance of Domiciled Banks in Sierra Leone: An Empirical Analysis”, Journal of Economic Policy Researches Cilt/Volume: 9, Sayı/Issue: 1, 2022 E-ISSN: 2148-3876
  57. Johnson, L. (2020). ‘The effects of real exchange rate on economic growth in Sierra Leone (1980-2015)’ published in Journal Of Business Cycle Vol.1 No.1 Jan-Jun (Autumn), 2020. http://oscilaciones.com/current/
  58. Johnson, L. (2020). "Dynamics of Poverty on Globalization" published in Encyclopedia of the UN Sustainable Development Goals, Walter Leal Filho et al. (Eds): No Poverty, 455848_0_En, (Chapter 132-1 https://link.springer.com/referenceworkentry/10.1007%2F978-3-319-69625-6_132-1
  59. Kaminsky, G, and Reinhart C, (1999), “The Twin Crises: The Causes of Banking and Balance of Payments Problems,” The American Economic Review 89 (3): 472–498.
  60. Kargbo, S.M., and Adamu M, (2009). Financial development and economic growth in Sierra Leone. Journal of Monetary and Economic Integration 9 (2),31–60.
  61. Khadraoui, N (2012). Financial development and economic growth. International Journal of Economics and Finance. Vol 4, No 5
  62. Laeven, L and Levine, R (2009), “Bank Governance, Regulation, and Risk Taking” Journal of
  63. Financial Economics 93(2): 260–274.
  64. Lee C and Heish M and Yang, S, (2014). "The relationship between revenue diversification and bank performance: Do financial structures and financial reforms matter?," Japan and the
  65. World Economy, Elsevier, vol. 29(C), pages 19-34.
  66. Levine, R. (1997). Financial development and economic growth: Views and Agenda. Journal of Economic Literature 35: 689-725.
  67. Loudis, D and Vouldis, A (2013). A Financial Systematic Stress Index for Greece. Working Paper Series, No 1563
  68. Maudos, J., and Fernandez, J., (2007). The cost of market power in banking: social welfare loss vs. cost inefficiency. “Journal of Banking and Finance”. 31 (7), 2104–2124.
  69. Michie, J (2011). Promoting Corporate Diversity in the Financial Service Sector. Journal of Social Entrepreneurship, Vol 1, Pages 310-322
  70. Michie, J and Oughton, C. (2013). Measuring Diversity in Financial Service Sector; A diversity index, SOAS, London
  71. Michie, J. (2011). Promoting corporate diversity in the financial services sector. Policy Studies, 32(4), 311–321
  72. Nderitu, K, (2016). "Market Structure, Macroeconomic Shocks, and Banking Risk in Kenya," Econometric Research in Finance, SGH Warsaw School of Economics, Collegium of Economic Analysis, vol. 1(2), pages 82-112, December.
  73. Odhiambo, N.M., (2009). Interest rate liberalization, financial deepening and economic growth in South Africa: An empirical investigation. In: Paper Presented at the Ninth Annual IBER
  74. & TLC Conference Proceedings, Las Vegas, NV, USA.
  75. Ogwumike F and Salisu A (2012). Financial development and economic growth in Nigeria. Journal of Monetary and Economic Integration, Vol 12, No 2
  76. Oluitan, R (2012), Financial development and economic growth in Africa. Business and Economic
  77. Research, Macrothink Institute, vol. 2(2), pages 55-66
  78. Priye, W and Ogiriki, T (2014) Financial Intermediation and Economic Growth. Mediterranean
  79. Journal of Social Sciences, Vol 5 No 17
  80. Romer, D. (1996). Advanced macroeconomics. University of California, Berkeley: McGraw-Hill.
  81. Salisu A (2018). "Energy consumption and economic growth in oil-importing and oil exporting
  82. countries: A Panel ARDL approach," Working Papers 048, Centre for Econometric and Allied Research, University of Ibadan.
  83. Sathye, A. (2005). Market Structure and Performance in Australian Banking. Review of
  84. Accounting and Finance. 4. 108-123. 10.1108/eb043425
  85. Turk Ariss, R., (2010). On the implications of market power in banking: evidence from
  86. developing countries. “Journal of Banking and Finance”. 34 (4), 766–774.
  87. Udom, F (2018), An Evaluation of Financial Stability in Nigeria. Global Advanced Research
  88. Journal of Management and Business Studies (ISSN: 2315-5086) Vol. 7(1) pp 032-036
  89. Vallascas, F and Keasey, K., (2012). Bank resilience to systemic shocks and the stability of
  90. banking systems: small is beautiful. “Journal of International Trade and Finance”. 31(6), 1746–1777.
  91. Weller, E and Zulfiqar, G (2013). "Financial Market Diversity and Macroeconomic Stability," Working Paperswp332, Political Economy Research Institute, University of
  92. Massachusetts at Amherst.
  93. (http://www.worldbank.org/financialdevelopment)
  94. www.investopedia.com