The purpose of this paper is to investigate the effect of bank activity restrictions and stringent capital regulation on bank operating efficiency in commercial banks from Sub-Saharan Africa (SSA) countries.
The study adopts the dynamic model two-step system general method of moment (GMM) estimation techniques. The purposive sampling method is used to select the sample from the SSA population. The dependent variable is bank efficiency, and the independent variables are stringent bank capital regulation and bank activity restrictions. Bank activity restrictions and capital stringency are indexed based on the bank regulation and supervision survey of 2002–2021. Secondary data are collected from the Global Financial Development Database, Bank Regulation and Supervision Database for the period 2002–2021.
The empirical findings suggest a significantly negative relationship between restricted financial regulation and bank efficiency. Strict capital regulation and activity restrictions lead banks to become inefficient.
To the best of the authors’ knowledge, this study is among the few study on regional level financial regulation effect on bank operating efficiency and it provides empirical evidence on the existing literature through a different estimation technique. The authors expand the existing understanding of the relationship between bank regulations and bank efficiency in the SSA region using major regulatory variables in detail in the estimation models. The rationale behind using such variables is that the region’s banking systems are heavily concentrated and typically inefficient in financial intermediation, and the diversity of financial institutions is limited.
