Credit risk is linked to liquidity hoarding in African banks

What the study found: The study found that rising credit risk is associated with liquidity hoarding in African banks. It also found that stronger corruption control weakens this risk-averse response, while global uncertainty strengthens it.
Why the authors say this matters: The authors conclude that the findings highlight the roles of credit risk, institutional conditions, and global uncertainty in shaping bank liquidity hoarding behavior. They also say the findings have policy implications for credit risk management, institutional reforms, and targeted SME financing initiatives.
What the researchers tested: The researchers used a fixed-effects panel model on an unbalanced panel of 474 commercial banks across 47 African countries from 2013 to 2022. They also used a two-step system GMM estimator, bank-size subsample analyses, and alternative proxies to check robustness and address possible endogeneity.
What worked and what didn't: The results show that when credit risk rises, banks shift assets toward liquid instruments and reduce off-balance sheet exposures. The study also reports that stronger corruption control attenuates this pattern, while global uncertainty amplifies it.
What to keep in mind: The abstract does not describe specific limitations beyond using robustness checks for possible endogeneity concerns. The findings are based on African commercial banks over 2013 to 2022, so the scope is limited to that context.

Key points

• Rising credit risk is associated with liquidity hoarding in African banks.
• Banks respond by shifting assets toward liquid instruments and reducing off-balance sheet exposures.
• Stronger corruption control weakens the liquidity-hoarding response.
• Global uncertainty strengthens the liquidity-hoarding response.
• The study analyzes 474 commercial banks across 47 African countries from 2013 to 2022.