Can We Predict the Financial Distress of Banks in Sub-Saharan Africa?

Abstract

This study investigates the predictors of financial distress of banks in Sub-Saharan Africa. Specifically, we examine the relationship between bank financial distress and the 5Cs (i.e., Character, Capacity, Capital, Condition, and Collateral). We use logistic regression and panel data from 228 listed and non-listed Sub-Sahara Africa Banks over the period 2006 to 2016 to test the hypotheses. We find that the rating measures of capacity (cost to income), capital (leverage), and condition (loan loss reserves to gross loan and inflation) positively affect the financial distress of the banks in Sub-Saharan Africa. Control of corruption decreases the probability of financial distress; however, the collateral and character indicators do not predict the financial distress of the banks. This study adds to the debate on how Character, Capacity, Capital, Condition, and Collateral affect bank financial distress in Sub-Saharan Africa, a region with high bank insolvency but research remains scant.