Bank Credit Risk and Macroeconomic Performance: Evidence from Sub-Saharan Africa

This study explores the relationship between macroeconomic performance and bank credit risk across Sub-Saharan Africa (SSA), a region where financial institutions operate amid persistent structural vulnerabilities, limited diversification, and exposure to both domestic and global shocks. While substantial research has analyzed how macroeconomic instability impacts credit risk in advanced and emerging markets (Beck et al., 2013; Louzis et al., 2012), empirical evidence from SSA remains fragmented, often lacking region-specific modeling that captures institutional weaknesses and external dependencies.

The central research question asks the following: To what extent do macroeconomic variables such as inflation, GDP growth, exchange rate volatility, and fiscal balance affect non-performing loan (NPL) ratios across SSA banking systems? The study hypothesizes that poor macroeconomic performance exacerbates credit risk, with more severe effects observed in low-income countries where monetary policy tools and supervisory mechanisms are weaker (Khemraj & Pasha, 2009; Nkusu, 2011).

Using a panel dataset from 25 SSA countries between 2005 and 2023, the study applies a system GMM estimator to address endogeneity and cross-country heterogeneity. Additional controls include institutional quality, regulatory strength, and bank-specific indicators.

Findings are expected to generate actionable insights for regional central banks and financial regulators, helping to design macroprudential tools suited to SSA economies. The paper contributes to the growing literature on financial stability by emphasizing the role of macroeconomic context in shaping bank risk across structurally diverse low- and middle-income countries.