THE RELEVANCE OF BASEL II REGULATORY CAPITAL REQUIREMENTS ON BANK PERFORMANCE IN DEVELOPING COUNTRIES: EVIDENCE FROM AFRICAN COMMERCIAL BANKS

AbstractBasel II capital accord requires banks to have minimum capital of 8% of the required funding for risk-weighted assets. Thus, commercial banks worldwide must implement this capital directive. This has also been... [ view full abstract ]

Abstract

Basel II capital accord requires banks to have minimum capital of 8% of the required funding for risk-weighted assets. Thus, commercial banks worldwide must implement this capital directive. This has also been campaigned by impact studies assessing how this and other Basel regulatory requirements impact bank behavior. 

Using a sample of 296 banks from 37 African countries over the period 2004-2015 complements previous literature on outcomes of Basel II accord. Our findings reveals that the increase in capital requirements have reduced bank performance (ROA &ROE) over the period.  Our findings also reveal  buffers have reduced Non-performing ratio implying that increase in regulatory capital improves the quality of lending in the sample studied(decrease in loan lending defaults).  At the same time, our results show performance improvement resulting from strong macro-economic variables (GDP Percapita and growth rate). This studies contributes to impact studies’ literature of Basel II Accord from developing countries.