Can National Development Banks Help Alleviate the Shortage of Patient Investment Capital in Africa? Evidence from Bank-Level Panel Data

Abstract

National development banks remain an important part of modern financial systems in developed as well as developing countries. They play an important role in providing long-term financing and countercyclical financing during financial and economic crises. In this context, this article aims to provide empirical evidence of the role of national development banks in Africa in providing medium-term and long-term credit and their performance in managing resources, using bank-level data from selected countries and the BankFocus database (maintained by Fitch and Bureau Van Dijk). The empirical results show that while national development banks do not lend more relative to commercial banks, they outperform the latter in focusing on medium-term and long-term loans, which is consistent with their mandate. The results further confirm that national development banks incur more risk, resulting in relatively higher nonperforming loan ratios. As expected, national development banks are not more profitable than commercial banks in general, but they do perform better when they are located in countries with relatively more developed financial systems. The results are similar for public banks. The evidence suggests that strengthening the lending capacity of national development banks would significantly help alleviate the shortage of patient investment capital; i.e., medium-term and long-term credit in African economies. The article discusses policy implications and proposes some avenues for further research.