Political Institutions and Macroeconomic Factors as Determinants of Credit Risk in South Africa
Abstract
This study analyses the effects of political institutions and macroeconomic factors on credit risk in South Africa using quarterly data between 1998 and 2016. The study uses the ARDL approach to cointegration and reports on both long-run and short-run influences of credit risk. In the long-run political institutions and gold prices are found to positively impact credit risk whereas Gross domestic product has a negative influence on credit risk. In the short-run however political institutions have a negative influence on credit risk. Further, the study confirms the recent country risk downgrades by rating agencies, S & P, Moody and Fitch. Policies that grow the economy and are consistent with the government’s long-term strategy needs to be followed to improve investor and lender confidence.
Downloads
References
Agung, I. G. N. (2011). Time series data analysis using EViews, John Wiley & Sons.
Ashraf, B. N. (2017). Political institutions and bank risk-taking behavior. Journal of Financial Stability, 29, 13-35.
Ayadi, F. S. & Ayadi, F. O. (2008). The impact of external debt on economic growth: A comparative study of Nigeria and South Africa. Journal of Sustainable Development in Africa, 10, 234-264.
Brooks, C. (2014). Introductory econometrics for finance, Cambridge university press.
Castro, V. (2013). Macroeconomic determinants of the credit risk in the banking system: The case of the GIPSI. Economic Modelling, 31, 672-683.
Chaibi, H. & Ftiti, Z. (2015). Credit risk determinants: Evidence from a cross-country study. Research in international business and finance, 33, 1-16.
Chang, C., Fuh, C. D. & Kao, C. L. M. (2017). Reading between the ratings: Modeling residual credit risk and yield overlap. Journal of Banking & Finance, 81, 114-135.
Clark, E. & Kassimatis, K. (2015). Macroeconomic effects on emerging-markets sovereign credit spreads. Journal of Financial Stability, 20, 1-13.
Cosset, J. C. & Roy, J. (1991). The determinants of country risk ratings. Journal of International Business Studies, 135-142.
Davidescu, A. A. (2015). Bounds test approach for the long run relationship between the shadow economy and official economy. An empirical analysis for Romania. Journal of applied quantitative Methods, 10.
Dimitrios, A., Helen, L. & Mike, T. (2016). Determinants of non-performing loans: Evidence from Euro-area countries. Finance research letters, 18, 116-119.
Garr, D. K. (2013). Determinants of credit risk in the banking industry of Ghana. Developing Country Studies, 3, 2225-0565.
Gillespie, B., Hackwood, J. & Mihos, C. (2010). Managing credit risk for global commodity producers. Australia: PricewaterhouseCoopers.
Havrylchyk, O. (2010). A macroeconomic credit risk model for stress testing the South African banking sector. Working Paper, WP/10/02.
Jiménez, G. & Saurina, J. (2004). Collateral, type of lender and relationship banking as determinants of credit risk. Journal of Banking & Finance, 28, 2191-2212.
Knoop, T. A. (2008). Modern financial macroeconomics: panics, crashes, and crises, Wiley-Blackwell.
Liu, J. & Zhong, R. (2017). Political uncertainty and a firm's credit risk: Evidence from the international CDS market. Journal of Financial Stability, 30, 53-66.
Louzis, D. P., Vouldis, A. T. & Metaxas, V. L. (2012). Macroeconomic and bank-specific determinants of non-performing loans in Greece: A comparative study of mortgage, business and consumer loan portfolios. Journal of Banking & Finance, 36, 1012-1027.
Manab, N. A., Theng, N. Y. & Md-Rus, R. (2015). The Determinants of Credit Risk in Malaysia. Procedia-Social and Behavioral Sciences, 172, 301-308.
Nikolaidou, E. & Vogiazas, S. (2017). Credit risk determinants in Sub-Saharan banking systems: Evidence from five countries and lessons learnt from Central East and South East European countries. Review of Development Finance, 7, 52-63.
Nkoro, E. & Uko, A. K. (2016). Autoregressive Distributed Lag (ARDL) cointegration technique: application and interpretation. Journal of Statistical and Econometric Methods, 5, 63-91.
Pesaran, M. H. & Shin, Y. (1998). An autoregressive distributed lag modelling approach to cointegration analysis. Econometric Society Monographs, 31, 371-413.
Pesaran, M. H., Shin, Y. & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16, 289-326.
Podpiera, J. & Ötker, M. I. (2010). The fundamental determinants of credit default risk for European large complex financial institutions, International Monetary Fund.
Qi, Y., Roth, L. & Wald, J. K. (2010). Political rights and the cost of debt. Journal of Financial Economics, 95, 202-226.
Roe, M. J. & Siegel, J. I. (2011). Political instability: Effects on financial development, roots in the severity of economic inequality. Journal of Comparative Economics, 39, 279-309.
Virolainen, K. (2003). Macro stress testing with a macroeconomic credit risk model for Finland. Bank of Finland.
Waemustafa, W. & Sukri, S. (2015). Bank specific and macroeconomics dynamic determinants of credit risk in Islamic banks and conventional banks. International Journal of Economics and Financial Issues, 5.
Ziaei, S. M. (2012). Effects of gold price on equity, bond and domestic credit: Evidence from ASEAN+ 3. Procedia-Social and Behavioral Sciences, 40, 341-346.
Copyright (c) 2018 S. Zhou, D.D Tewari
This work is licensed under a Creative Commons Attribution 4.0 International License.
Author (s) should affirm that the material has not been published previously. It has not been submitted and it is not under consideration by any other journal. At the same time author (s) need to execute a publication permission agreement to assume the responsibility of the submitted content and any omissions and errors therein. After submission of a revised paper in the light of suggestions of the reviewers, editorial team edits and formats manuscripts to bring uniformity and standardization in published material.
This work will be licensed under Creative Commons Attribution 4.0 International (CC BY 4.0) and under condition of the license, users are free to read, copy, remix, transform, redistribute, download, print, search or link to the full texts of articles and even build upon their work as long as they credit the author for the original work. Moreover, as per journal policy author (s) hold and retain copyrights without any restrictions.
