Geographic complexity and bank risk: Evidence from cross-border banks in Africa

Abstract

I construct a novel dataset to measure the geographic complexity of cross-border African banks and relate it to their default and earnings risk. The results suggest that having a higher degree of geographic complexity decreases risk. Further results show that the negative relationship between geographic complexity and risk is significantly channeled through changes in banks’ loan quality. Following the recent exit from Africa by major international banks, indigenous African banks could be encouraged to expand further across the continent to take advantage of available opportunities, in addition to diversifying their risk. The success of such expansions, however, may largely depend on effective credit management.