EFFECT OF BANK-CHARACTERISTIC AND MACRO- ECONOMIC FACTORS ON LISTED COMMERCIAL BANKS’ PROFITABILITY IN SUB-SAHARAN AFRICA
EFFECT OF BANK-CHARACTERISTIC AND MACRO- ECONOMIC FACTORS ON LISTED COMMERCIAL BANKS’ PROFITABILITY IN SUB-SAHARAN AFRICA

Summary/Abstract: This study investigated Bank-characteristic and Macro-Economic factors affecting commercialbanks’ profitability in Sub Saharan Africa for the period of 2008-2017 usingpanel data of 56 listed banks drawn from the Sub-Region. Secondary data extracted fromthe listed Commercial Banks' financial statements were analyzed. The explanatory variableswere represented by Credit Risk, Liquidity Risk, Leverage Ratio and Exchange Ratewhile profitability was represented by Return on Assets (ROA). The study explored a correlationalresearch design to examine the effect of Bank-characteristic and Macro-Economicfactors on commercial banks’ profitability. VCE Robust Regressions were employedfor the combined banks and country-specific banks’ analysis based on the HausmanTest Specification (fixed and random effects model). Although the Hausman specificationtest suggested that a fixed effect model is appropriate for the integrated banks’data analysis, the study used VCE Robust Regression to underpin the outcome of theHausman specification. The study found that Bank-characteristic and macro-economicfactors had significantly affected the commercial banks' profitability over the study periodfor the aggregate model of all the banks while only internal factors mainly influencedbanks’ profitability for the country-specific banks’ profitability. The Credit Risk had apositive and significant relationship with banks’ profitability while Exchange Rate had anegative and significant relationship with bank profitability during the study period. Incontrolling foreign exchange rate volatility, Sub-Sahara Africa Clearing Union (SACU)is recommended for Central Banks of member countries to enable them to settle paymentsfor transactions within the Sub-region on the basis of multilateral pacts. This will, in turn,reduce the negative effect of an exchange rate increase in the sub-region and subsequentlyenhance banks’ profitability.

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