Department of Economics

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Browsing Department of Economics by Subject "Banks and banking -- South Africa"

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    Dynamic interactions between stock markets and banks in South Africa : testing for market disciplining of banks
    (University of Fort Hare, 2015) Syden, Mishi
    Literature on the significance of vibrant financial system is vast and conclusive, more so on the need for strong banking system for sustainable inclusive growth. This study take cognisant of such literature and explores the possible links between stock markets and banking system, with emphasis on testing the presence of market disciplining of banks. The study analysed South African individual bank panel data for the period 1994-2014. The study makes the following contributions: testing of market discipline of banks by stock markets in a developing economy, albeit this new strand in banking sector research has been fairly a preserve for developed countries across literature; testing stock market channel of monetary policy transmission in South Africa; exploring robust estimations to mitigate downfalls with short and unbalanced panels; controlling for financial crisis as well as covering a period of Basel II & III which emphasizes market discipline as a third pillar. The role of stock market discipline in aiding regulators and supervisors in ensuring efficiency and stability of the banking system is phenomenal internationally as seen by the recognition in Basel II & III, however its effectiveness has not been empirically tested in developing countries like South Africa. Diverse panel data estimation techniques producing robust/ corrected standard errors have been employed on the data making use of STATA 13. The study also made use on Pooled Mean Group estimates as well as dynamic fixed effects for robustness checks. The empirical results indicate that indeed stock market indicators are omitted variables in the traditional bank lending channel model and that the specified stock market channel model has no omitted variables. The presence of a stock market channel of monetary policy transmission in South Africa is established and thus vindicating the appropriate intermediate target for the central bank to be price level (inflation), with price stability being the ultimate goal. Furthermore the results point to the ability of stock markets to monitor and influence the banks (market discipline of banks) as indeed stock markets have been found to be significantly linked to banks’ operations as being information aggregator and provider. The results have varied implications for policy and further research.
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    Financial structure and economic growth nexus: comparisons of banks, financial markets and economic growth in South Africa
    (University of Fort Hare, 2013) Godza, Praise; Makhetha-Kosi, P
    The importance of the financial structure system, which comprises the banking sector and financial markets, to the growth of a country’s economy cannot be underestimated. It is important to analyse comparatively the contribution of each sector to the economic growth of a country. This study, therefore, empirically examined the relationship between financial markets, banks and economic growth in South Africa using time series analysis for the period 1990 to 2011. The study used the Vector Error Correction model (VECM) based causality tests to establish the link between financial structure (represented by both banks and financial markets) and economic growth. Real GDP was used as a measure for economic growth, Bank credit to the private sector was used as a proxy for the banking system, turnover ratio and value of shares traded was used as a measure for the stock market and bond market capitalisation was used as a measure for the bond market. To determine the net effects of financial structure on long run growth in South Africa, one control variable was added which was the ratio of government expenditure to GDP to control for the government’s role in the economy. The Johansen co-integration technique was also employed to obtain a long run relationship. The results from the study revealed that the stock turnover ratio, bond market capitalisation, and government expenditure have a long run relationship with economic growth while bank credit to private sector and value of shares traded showed a negative relationship with economic growth. With granger causality all the variables proved to granger cause economic growth except for bond market capitalisation where economic growth prove to granger cause bond market development. The study recommended that measures to improve liquidity, transparency and accessibility of both the banking sector and financial markets instruments should be a priority for South African authorities. The authorities should, therefore, encourage stock market development through an appropriate mix of taxes, legal and regulatory policies to remove barriers to stock market operations and thus enhance their efficiency since stock markets in Africa are underdeveloped. Strong financial regulation and supervision in banks to ensure efficiency in credit allocation should be done to enable channelling of credits to capital development rather than consumption spending.