Integration of the African banking sector

The study examines the regional integration of the African banking sector and explores the factors explaining interbank integration in Africa. It adopts the variance decomposition and Kalman smoother techniques and relies on data from fifteen (15) African countries from 2002 to 2022. The evidence shows that regional components are generally less important in explaining the total variance of the return to the African banking sector indices. The findings also indicate that financial market development, liquidity, non-performing loans, interest rate spread, operational efficiency, financial efficiency, and governance quality affect the integration of the African banking sector. The results further show that the 2000–2009 GFC and the Russia-Ukraine war disrupted the integration of the African banking sector, whereas the COVID-19 pandemic led to an improvement in integration. The findings imply that geographic diversification in the African banking sector may yield superior gains, and cross-country crisis transmission could be slower and less extensive.