Inefficiencies in the African Banking System: Is it Bad Luck or Bad Management? A Historic Perspective

HRMARS - Bank failure in African countries become a matter of grave and utmost concern to the entire continent and raised a doubt in the minds of depositors on the management of these banks. This paper applies the Generalized Method of Moments (GMM) using unbalanced panel annual data from 130 commercial banks in selected African countries (Algeria, Egypt, Kenya, Nigeria, South Africa, and Tanzania) during the period 1998-2022 to examine the relationship between cost efficiency and non-performing loans. The result for South Africa, Egypt, Nigeria and Algeria (SENA) are explained by both the bad luck and bad management hypotheses. In sum, it is a combination of managerial inefficiency and external economic conditions of these countries that contributed to bank failures in these African countries. Results for Kenya and Tanzania neither support bad luck nor bad management hypothesis. Therefore, appropriate policy options that incorporate both aspects of bank failure shall act to remedy the non-performing loan problems in such African countries.