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Kanga, Désiré, Murinde, Victor and Soumaré, Issouf (2020) 'Capital, risk and profitability of WAEMU banks: Does bank ownership matter?' Journal of Banking and Finance, 114.

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We investigate the simultaneous relationship among bank capital, risk and profitability, but also considering bank ownership and the emergence of Pan-African cross-border banks. We specify a simultaneous equation model and estimate it using hand-collected bank level data from all West African Economic and Monetary Union (WAEMU) countries for 2000–2014. We split the countries into lower middle-income (LMICs) and low-income (LICs) according to the World Bank classification. We uncover evidence that the sensitivity of bank profitability to an increase in capital ratio seems to be somewhat higher in LMICs (+0.10) than in LICs (+0.05). Moreover, we find that bank capital positions tend to comove positively with the business cycle in LICs, mimicking a key postulate of Basel III. After differentiating between cross-border Pan-African banks and foreign banks from outside the continent, we find that the overall effect of bank ownership on risk depends on the origin of banks (French versus Pan-African). These findings are robust to alternative estimation techniques and the use of competing measures of risk and profitability.

Item Type: Journal Article
Keywords: WAEMU banks, Bank capital, Bank risk, Bank profitability, Basel accords, Pan-African cross-border banks, Bank ownership
SOAS Departments & Centres: Departments and Subunits > School of Finance & Management
ISSN: 03784266
Copyright Statement: © 2020. This manuscript version is made available under the CC-BY-NC-ND 4.0 license
DOI (Digital Object Identifier):
Date Deposited: 16 Mar 2021 09:27

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