Abstract
This thesis focuses on the relevance of the Basel III countercyclical capital buffer
requirement and the possible effects of the Basel III higher common equity capital
requirements on banking lending rates, bank risk-taking behaviour, and bank
efficiency in Africa. In order to examine the relevance of the Basel III countercyclical
capital buffer requirement, this thesis, in the first empirical chapter (Chapter Three),
examines the cyclical behaviour of banks’ regulatory capital buffers using a panel
dataset of 257 commercial banks in 23 African countries over the period 2004–2014.
The effects of bank market power, revenue diversification and cost of funding on bank
capital buffers are also considered in the analysis. The results show that higher capital
buffers are associated with higher market power, higher revenue, diversification and
higher costs of funding. Additionally, the results show significant evidence of
procyclical behaviour of banks’ regulatory capital buffers in the sampled countries.
We finally conclude that that sampled African banking systems are not exposed to
contagion and systemic risks arising from countercyclical movements of bank capital
buffers to the real economy. All in all, the results of this study do not support the
implementation of the Basel III countercyclical capital buffer requirement in the
sampled African countries.
In the second empirical chapter (Chapter Four), this thesis focuses on the possible
impact of the Basel III higher common equity requirements on bank lending rates in
four African countries — Egypt, Kenya, Nigeria and South Africa. An accounting
model is employed to estimate the increase in the bank lending rates that is necessary
to keep the bank return on equity (ROE) unchanged under the heightened regulatory
capital framework. According to the estimates, the impact of the higher equity capital
requirement on bank lending rates in Egypt, Kenya, Nigeria and South Africa would
be 47.43, 32.41, 18.36 and 12.59 basis points increase, respectively, for every one
percentage-point increase in the equity-capital ratio. These results suggest that the
implementation of the Basel III higher equity capital requirements is likely to have
lesser effects on lending rates in South Africa and Nigeria, compared to Egypt and
Kenya.
The third empirical chapter (Chapter Five) employs system GMM to examine,
empirically, the relationship between common equity capital and bank risk-taking
behaviour in South Africa. The results show that higher common equity capital is
associated with lower bank risk. Additionally, the results show that there is a positive
and significant relationship between bank market power and risk, while the...
Ph.D. (Economics)