Basel III in Africa : implementation and performance effects

Abstract

In this dissertation, the predictive relationships of Basel III implementation, Tier 1 and 2 capital, total and fixed assets, loans, securities, risk-weighted and non-performing assets, loan loss provision, interest and non-interest income, interest expense, goodwill, and net income on the return on average assets (ROAA) and return on average equity (ROAE) of African banks were evaluated. Financial data from 46 African countries and 609 banks were collected over multiple periods from 2013 to 2023 from Wharton Research Data Services [WRDS] Standard and Poor’s [S&P] Market Intelligence. A theoretical framework was developed to use the pecking order and stewardship theories to determine whether Basel III regulation implementation and performance effects were connected to bank performance. As the data were time-dependent, a quantitative correlational design was used with the ordinary least squares multiple regression method. The results revealed that Basel III regulation implementation did not significantly affect bank performance. Second, the point biserial correlations demonstrated that the pre- and post- Basel III implementations were positively correlated for ROAA and ROAE. This result indicated that ROAA and ROAE demonstrated a significant response to the pre-and post-Basel III implementations. Third, the Pearson correlation analysis results indicated that Tier 1 capital was significantly related to ROAA and ROAE. This result implied that ROAA and ROAE would increase substantially as Tier 1 capital increases. Fourth, the time points were not statistically significant for ROAA and ROAE, indicating that the mean ROAA and ROAE for pre-Basel III implementation magnitude and direction were lower than those of post-Basel III implementation. The moderated analyses' results revealed that the interaction terms (CapitalTier1_int, Loans_int, and NetIncome_int) were significant with ROAA and ROAE. This finding suggests that the relationships of the three aforementioned factors were mutually influential in a meaningful and impactful manner with the criterion variables. Lastly, the results revealed the performance effects of Basel III regulations on African banks and provided timely empirical and policy implications for industry and practice for bank regulators, banking officials, investors, shareholders, stakeholders, policymakers, and researchers.