Does credit risk drive liquidity hoarding in African banks? The influence of institutional quality and global uncertainty

Purpose This paper aims to explore the extent to which credit risk drives liquidity hoarding behavior in African banks, a context where financial intermediation remains shallow and credit markets face persistent fragilities. It further investigates how institutional quality and global uncertainty shape this relationship. Design/methodology/approach This study uses a fixed-effects panel model on an unbalanced panel of 474 commercial banks across 47 African countries from 2013 to 2022. Robustness is assessed using a two-step system GMM estimator to address potential endogeneity concerns, along with bank-size subsample analyses and alternative proxies. Findings The authors document that rising credit risk induces banks to hoard liquidity by reallocating assets toward liquid instruments and scaling back off-balance sheet exposures. Extended exploration reveals that stronger corruption control attenuates this risk-averse response, whereas global uncertainty amplifies it, underscoring the interplay between domestic governance and external shocks in shaping bank liquidity hoarding behavior. Originality/value This study advances the understanding of liquidity hoarding in African banking systems by highlighting the combined roles of credit risk, institutional conditions and global uncertainty. The findings carry important policy implications, stressing the need for improved credit risk management, institutional reforms and targeted SME financing initiatives to foster financial intermediation and sustainable economic growth in emerging and developing markets.

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Publication Details

Journal
Journal of Financial Economic Policy
Published
2026-02-24
DOI
https://doi.org/10.1108/jfep-09-2025-0383
Primary Topic
Banking stability, regulation, efficiency
Type
article
Field-Weighted Citation Impact
0.00
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article

Does credit risk drive liquidity hoarding in African banks? The influence of institutional quality and global uncertainty

Anas Alaoui Mdaghri, Abdessamad Raghibi, Abdelhamid Ait Bihi
Journal of Financial Economic Policy
Banking stability, regulation, efficiency
article

Does credit risk drive liquidity hoarding in African banks? The influence of institutional quality and global uncertainty

Anas Alaoui Mdaghri, Abdessamad Raghibi, Abdelhamid Ait Bihi
article en

Abstract

Purpose This paper aims to explore the extent to which credit risk drives liquidity hoarding behavior in African banks, a context where financial intermediation remains shallow and credit markets face persistent fragilities. It further investigates how institutional quality and global uncertainty shape this relationship. Design/methodology/approach This study uses a fixed-effects panel model on an unbalanced panel of 474 commercial banks across 47 African countries from 2013 to 2022. Robustness is assessed using a two-step system GMM estimator to address potential endogeneity concerns, along with bank-size subsample analyses and alternative proxies. Findings The authors document that rising credit risk induces banks to hoard liquidity by reallocating assets toward liquid instruments and scaling back off-balance sheet exposures. Extended exploration reveals that stronger corruption control attenuates this risk-averse response, whereas global uncertainty amplifies it, underscoring the interplay between domestic governance and external shocks in shaping bank liquidity hoarding behavior. Originality/value This study advances the understanding of liquidity hoarding in African banking systems by highlighting the combined roles of credit risk, institutional conditions and global uncertainty. The findings carry important policy implications, stressing the need for improved credit risk management, institutional reforms and targeted SME financing initiatives to foster financial intermediation and sustainable economic growth in emerging and developing markets.

Journal of Financial Economic Policy
Université Ibn Zohr (MA)
Peace, Justice and strong institutions
Openalex Percentile: Top 47%
Banking stability, regulation, efficiency
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