The impact of economic policy uncertainty on the performance of African banks

Abstract

This study investigates the impact of economic policy uncertainty (EPU) on the performance of African banks, utilising a panel of 35 publicly listed commercial banks from seven African countries over the period from 2000 to 2022. A fixed-effect estimation model was employed to analyse the data, revealing that EPU has a detrimental effect on bank performance in Africa. Additionally, a significant increase in non-performing loans was observed during periods of heightened EPU. The findings also indicate that bank size negatively impacts performance, whereas adequate capital buffers enhance bank performance during stress periods. These results underscore the importance of management efficiency, risk assessment, and capital adequacy in ensuring the robust performance of African banks. It is recommended that policymakers and regulators bolster the capital levels of African banks to fortify the sector. Moreover, the formulation of stable and non-disruptive economic policies is crucial to mitigate the adverse effects of EPU on the African banking sector.