Determinants of banking sector development: Evidence from Sub-Saharan African countries

This study examines the determinants of banking sector development in sub-Saharan African countries using a panel of 25 countries from 1997 to 2014. It utilises the system Generalized Method of Moments (GMM) dynamic panel model estimator. Using a composite index of banking sector development, the estimation results show that population density and simultaneous openness to trade and capital promote banking sector development while financial liberalisation hinders banking sector development. This study reveals that institutional quality, population density, and trade openness increases the depth of the banking sector. Also, it demonstrates that law, inflation, and religion promotes the efficiency of the banking sector while latitude, trade openness, income level, and ethnic diversity reduce banking sector efficiency. In addition, it shows that law and simultaneous openness to trade and capital enhances the stability of the banking sector while land area, financial liberalisation, economic growth, and inflation adversely affect banking sector stability.