Resilience and spillover effects on bank financing for the private sector development in sub-Saharan Africa

Bank lending to the private sector remains marginal in sub-Saharan Africa, with disparities between countries and sub-regions. This study investigates the effect of bank resilience and spatial spillover effects on bank financing for the private sector in sub-Saharan Africa. The Spatial Durbin Random Effects Model (SDM) is one of the appropriate estimation techniques applied for 27 sub-Saharan African countries from 2011 to 2020. The results show that the more resilient banks are, the more incentive they have to extend credit directly to the private sector in the long run. Besides, in the long run, there are endogenous spatial effects through bank lending and exogenous spatial effects through remittances, trade openness, external debt stocks, bank profitability, government spending, and inflation. Incentives for banks to finance the private sector in the region should focus on building bank resilience, increasing public spending, fighting corruption and inflation at the national level, and limiting external debt. Policymakers must weigh these different policies’ effects against the expected positive spillover effects of remittances, trade openness, external debt stocks, bank profitability, and public spending in neighbouring countries. They must also take into account the expected adverse effects of inflation. The study differs from most previous studies, including spatial spillover effects beyond direct effects.