Diversification and banks’ funding costs in Africa: The role of financial regulations
Background: The banking literature suggests that banks can reduce their funding costs by optimising their deposit mix to prioritise low-cost accounts, managing capital efficiently, and employing diversification strategies to attract more cost-effective funding sources. While the roles of deposit mix...
Saved in:
| Main Authors: | , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
AOSIS
2025-03-01
|
| Series: | South African Journal of Economic and Management Sciences |
| Subjects: | |
| Online Access: | https://sajems.org/index.php/sajems/article/view/5809 |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| _version_ | 1849768599164551168 |
|---|---|
| author | Simon Kamau Beatrice D. Simo-Kengne |
| author_facet | Simon Kamau Beatrice D. Simo-Kengne |
| author_sort | Simon Kamau |
| collection | DOAJ |
| description | Background: The banking literature suggests that banks can reduce their funding costs by optimising their deposit mix to prioritise low-cost accounts, managing capital efficiently, and employing diversification strategies to attract more cost-effective funding sources. While the roles of deposit mix optimisation and capital management in lowering funding costs are well-documented, the impact of diversification remains relatively underexplored, particularly in developing countries.
Aim: This study examines the relationship between diversification, financial regulations and banks’ funding costs.
Setting: A sample of 563 banks operating across 53 African countries over the period 2007–2021 was selected based on the availability of data.
Method: This study employs fixed effects model as the main estimation approach, along with two-stage least squares (2SLS) and generalised method of moments (GMM) estimation technique for robustness test.
Results: The study’s results indicate that diversification significantly lowers banks’ cost of funds in Africa. The analysis also reveals that revenue diversification has a more pronounced impact on large and international banks. Furthermore, the study identifies an indirect effect of financial regulations on banks’ funding costs through revenue diversification.
Conclusion: The study highlights the need for bank managers, particularly those in large international banks, to proactively adopt diversification strategies to optimise their funding structures and reduce costs effectively.
Contribution: The study provides insights into the broader implications of the interactions between regulatory frameworks, bank diversification, and funding costs in Africa. |
| format | Article |
| id | doaj-art-6315b30f694b400182021fef7e5060f5 |
| institution | DOAJ |
| issn | 1015-8812 2222-3436 |
| language | English |
| publishDate | 2025-03-01 |
| publisher | AOSIS |
| record_format | Article |
| series | South African Journal of Economic and Management Sciences |
| spelling | doaj-art-6315b30f694b400182021fef7e5060f52025-08-20T03:03:44ZengAOSISSouth African Journal of Economic and Management Sciences1015-88122222-34362025-03-01281e1e1210.4102/sajems.v28i1.58091121Diversification and banks’ funding costs in Africa: The role of financial regulationsSimon Kamau0Beatrice D. Simo-Kengne1Department of Economics and Econometrics, College of Business and Economics, University of Johannesburg, JohannesburgDepartment of Economics and Econometrics, College of Business and Economics, University of Johannesburg, JohannesburgBackground: The banking literature suggests that banks can reduce their funding costs by optimising their deposit mix to prioritise low-cost accounts, managing capital efficiently, and employing diversification strategies to attract more cost-effective funding sources. While the roles of deposit mix optimisation and capital management in lowering funding costs are well-documented, the impact of diversification remains relatively underexplored, particularly in developing countries. Aim: This study examines the relationship between diversification, financial regulations and banks’ funding costs. Setting: A sample of 563 banks operating across 53 African countries over the period 2007–2021 was selected based on the availability of data. Method: This study employs fixed effects model as the main estimation approach, along with two-stage least squares (2SLS) and generalised method of moments (GMM) estimation technique for robustness test. Results: The study’s results indicate that diversification significantly lowers banks’ cost of funds in Africa. The analysis also reveals that revenue diversification has a more pronounced impact on large and international banks. Furthermore, the study identifies an indirect effect of financial regulations on banks’ funding costs through revenue diversification. Conclusion: The study highlights the need for bank managers, particularly those in large international banks, to proactively adopt diversification strategies to optimise their funding structures and reduce costs effectively. Contribution: The study provides insights into the broader implications of the interactions between regulatory frameworks, bank diversification, and funding costs in Africa.https://sajems.org/index.php/sajems/article/view/5809revenue diversificationassets diversificationfinancial regulationsbanks’ funding costsafrica. |
| spellingShingle | Simon Kamau Beatrice D. Simo-Kengne Diversification and banks’ funding costs in Africa: The role of financial regulations South African Journal of Economic and Management Sciences revenue diversification assets diversification financial regulations banks’ funding costs africa. |
| title | Diversification and banks’ funding costs in Africa: The role of financial regulations |
| title_full | Diversification and banks’ funding costs in Africa: The role of financial regulations |
| title_fullStr | Diversification and banks’ funding costs in Africa: The role of financial regulations |
| title_full_unstemmed | Diversification and banks’ funding costs in Africa: The role of financial regulations |
| title_short | Diversification and banks’ funding costs in Africa: The role of financial regulations |
| title_sort | diversification and banks funding costs in africa the role of financial regulations |
| topic | revenue diversification assets diversification financial regulations banks’ funding costs africa. |
| url | https://sajems.org/index.php/sajems/article/view/5809 |
| work_keys_str_mv | AT simonkamau diversificationandbanksfundingcostsinafricatheroleoffinancialregulations AT beatricedsimokengne diversificationandbanksfundingcostsinafricatheroleoffinancialregulations |