Do Credit Information Sharing Schemes Matter to Bank Profitability? Evidence From Africa

ABSTRACT

The study investigates the profitability of banks within 41 African countries from the period 2004 to 2013 at different levels of credit information sharing using the depth of credit information index to measure the extent of credit information sharing (i.e. the rules/laws and practice affecting the coverage, scope and accessibility of credit information available either through private bureaus/public registries) in Africa. The extent of credit information sharing is also disaggregated into Private Credit Bureau coverage and Public Credit Registry Coverage to capture the relative impacts of the two distinct forms of credit information sharing schemes on bank profitability. A Fixed Effects regression model was employed on unbalanced panel data from the Bank Scope Database.The results indicate that banks are profitable when there is voluntary credit information sharing through the Private Credit Bureaus, whiles compulsory credit information exchanges through Public credit Registries used as government antitrust policy mechanism which fosters competition has an insignificant impact on the profitability of banks in Africa. The study further shows that the extent of credit information sharing in Africa does not significantly support bank profitability as the depth of credit information sharing is low in Africa. Nevertheless, credit information sharing through Private Credit Bureaus significantly matters in enhancing bank profitability whiles other bank specific factors such as Capital Adequacy, Credit Risk and Management/Operational efficiency also significantly explains the variations in the profitability of banks in Africa. xii These results are suggestive of the fact that banks can improve their profitability by credit information exchanges through private credit bureaus to alleviate related information asymmetric problems, whereas controlling for the level of equity, non-performing loans and enhancing managerial/operational efficiency can further improve profitability. Thus, government measures and policies must provide the enabling financial environment that will accelerate growth and improve bank profitability.