Effects of lending rates and financial development on loan portfolio in sub-Saharan Africa

Abstract This study investigates the complex dynamics between lending interest rates, loan portfolio structures, and financial sector development in Sub-Saharan Africa (SSA). Utilizing a panel data econometric approach, specifically two-step system GMM and the fixed effect regression models, the analysis covers 47 SSA countries from 2010 to 2023. The findings reveal that elevated lending rates adversely affect both the size and quality of loan portfolios. Conversely, financial development, particularly in access and efficiency exerts a positive influence on portfolio performance. Importantly, the interactive effect shows that greater financial access significantly mitigates the negative impact of rising interest rates on loan portfolio quality. These results highlight the need to enhance financial inclusion, deepen capital markets, and improve institutional efficiency to foster sustainable credit systems and financial resilience in SSA.