Unpacking Financial Globalization and the Bottom Line of the Banking Sector in the CEMAC zone

Abstract ―​

The study observed that the banking sector in the CEMAC Zone has been grappling with low profitability and suboptimal returns on assets despite the structural reforms such as increase product diversification that have taken place in the zone. With increase in globalisation across the globe, the study therefore examines the influence of financial globalisation on the profitability of the banking sector in the CEMAC zone. Using panel data obtained from IMF Financial Development database and the World Development Indicators, and with the aid of the Correlated Panels Corrected Standard Errors and the Driscoll-Kraay Standard Errors regressions models, the study finds that financial globalization has a consistently negative association with the bank performance. The impact of bank concentration and regulatory capital is mixed or limited. Macroeconomic factors like exchange rate and inflation show modest effects. The interaction between financial globalization and bank lending is crucial, with varying net effects across different quantiles. Base on the findings, the study suggests banks to maintain appropriate regulatory capital requirements, invest in financial infrastructures, and implement regulatory frameworks and risk management practices to mitigate the potential negative impacts of financial globalization, and design policies to encourage sustainable bank lending in the context of financial globalization.