A thesis submitted to the Faculty of Commerce, Administration and Law, in fulfillment of the requirement for the Degree of Doctor of Philosophy in Economics at the University of Zululand, 2019. / The extent of the damage caused by the 2007/08 global financial crisis (GFC) has forced policymakers all over the world to respond promptly in order to mitigate its effect, a process in which they are still engaged in, particularly in advanced economies. The main objective of this study is to measure systemic risk in African emerging economies and develop a macroprudential regulatory framework to mitigate or limit the effect of such risk. More specifically, the study intends to1) Developing financial stress index (FSI) for the Emerging African economy; 2) Investigate the possibility of Early Warning Signal (EWS) helping in predicting and preventing or minimising the effects of the crisis on financial institutions; 3) Assess the resilience of individual banking companies to adverse macroeconomic and financial market conditions using stress testing technique; 4) Identify the source of fluctuation within the system; 5) Identify and measure systemic risk emanating from the capital flow (surge) as well as its effects on financial stability. This study contributed to the body of knowledge by measuring systemic risk in emerging African economies. To the best of my knowledge, there have not been any studies that have been conducted for the measure of systemic risk with the context of emerging African economies. The target economies include South Africa, Egypt, Nigeria, and Kenya. The first objective of the study is to construct a financial stress index (FSI) for emerging African economies. The FSI which is aimed at revealing the functionality of the financial system a single aggregate indicator that is constructed to reflect the systemic nature of financial instability and as well to measure the vulnerability of the financial system to both internal and external shocks. The result shows that both the domestic and international shocks created uncertainty in the economies under consideration. On the international scene, we have the financial crisis while on the domestic scene; we have slow growth, banking crisis, energy crisis, labour crisis, coupled with political uncertainty. The FSI is also useful and appropriate as the dependent variable in an early signal warning model, and as well be used to gauge the effectiveness of government measures to mitigate financial stress. The models forecasting performance was tested using the ordinary least square methods and it affirmed that the model is reliable and that the FSI can be used for prediction of a future crisis. v The aim of the second objective is to develop an early warning signal (EWS) model to predict the possibility of the occurrence of a financial crisis in emerging African countries. The multinomial logit model built by Bussiere and Fratzscher (2006) was adopted to afford policy makers ample time to prevent or mitigate potential financial crisis. In summary, the result suggests that emerging African economies are more likely to face financial crisis as debts continue to rise without a corresponding capacity to withstand capital flow reversal as well as excessive FX risk due to currency exposure. The result further indicates that rising debt exposure increases the probability or likelihood of the economies remaining in a state of crisis. This result confirms the significance of a financial stability framework that fits Africa’s emerging economies characteristics such as rising debt profile liquidity and currency risk exposure. The third objective is to test the resilience of the financial sector using stress testing technique. Macro stress testing is a multi-step simulation process aimed at estimating the impact of credit risk shock on macroeconomic as well as financial sectors. In this study, a two-step approach was employed in this chapter. The first step involves analyzing the determinants of credit risk in 4 Emerging African economies during the period 2006m1 to 2012m12 using the panel Auto Regressive Distribution Lag (ARDL) model. Second, the vector autoregressive (VAR) models were employed to assess the resilience of the financial system as well as the economy to adverse credit risk shocks. The result shows that all the variables under both the macro and financial model jointly determine credit risk, although when examined on an individual basis only, UMP, IBR, and INF have a significant impact on NPL in the long run. For the macro stress testing, the VAR methodology was employed to stress test the emerging African economy financial sector and the result indicated that there a significant relationship between changes in output gap (GAP) and the nonperforming loans. A significant relationship was also established between inflation and nonperforming loans. In all, South Africa and Nigeria’s financial system seems more resilient to credit losses associated with this scenario without threatening financial stability compared to Kenya and Egypt. The fourth objective examined the sources of capital flows surge and their impact on macroeconomic variables. This study employed a ��−�������� to investigate the source capital flow surge within the system. The main findings of the result indicate that capital flow, which is vi proxied by FDI, is influenced by a wide variety of macroeconomic variables such as inflation, export growth and unemployment. There is therefore need for the implementation of capital controls framework tame massive capital inflows. Nevertheless, such a mechanism should not undermine the impact of capital inflows on employment, growth and financial stability. The fifth objective of the study is aimed at identifying and measuring the sources of systematic risk and its impact on the stability of the financial system using the Conditional Value-at-Risk methodology. The main finding of the study indicates that at the normal and extreme event the banking sector contributes positively and significantly to the real economy for all the countries except for Nigeria at the extreme event or 1 percent quantile. This study, therefore, concludes that the banking sector, stock market volatility contributes greatly to systemic risk in emerging African economies. The individual bank also contributes significantly to systemic risk for all the economies although the magnitudes are relatively different across economies. This finding is of great interest to policymakers since it shows that the banking sectors as well as stock market volatility have a negative impact on the real economy. This result is plausible as the banking and financial sector for most emerging economies constitute a greater proportion of the real economy. There is, therefore, need for a regulatory framework to reduce risk emanating from the banking sector as well as the financial markets. In summary, due to huge capital flows and rising debt level in emerging African economies, there is, therefore, a need for a macroprudential policy that will fit African economies as well as the implementation of capital controls framework tame massive capital inflows. Efforts should be made to reduce the rising debts profile of most countries and that will require a greater level of commitment from their respective government and central banks. However, these should be in the interest of the growth and stability of the financial system and the real economy at large. In the case of the banking sector, since it has a great impact on triggering systemic risk, more effort should be utilized to continue to monitor its performance so that potential risk can be detected early and nip in the bud.

The maturity transformation of deposits is a primary driver of economic growth, as loans enable borrowers to spend funds, thereby growing the economy. However, if borrowers cannot repay their loans, the asset quality of banks deteriorate, resulting in non-performing loans or, worse, an economic crisis. An understanding of how macroeconomic and microeconomic determinants impact bank asset quality in South Africa can contribute to knowledge of the bank asset quality phenomenon in the African context. Due to the 2008/2009 global financial crisis, the introduction of new legislation and the value of gold exports, the South African economy presents an opportunity to make an original contribution to the knowledge of determinants that influence bank asset quality. In addition to studying bank asset quality determinants that are contested in research, this study also aims to determine whether a superior returns determinant of non-performing loans exists when comparing a bank’s profitability determinants, namely return on assets, return on equity and interest income on loans. This study applied panel data regression analysis, making use of a balanced panel approach, to study the determinants of bank asset quality. This approach recontextualises the existing bank asset quality theory for the South African financial sector. The results indicate that South Africa is not resilient against the impact of global financial crises trickling through international trade linkages and that regulatory changes do not instantly improve bank asset quality, and may even reduce the short-term asset quality. Moreover, bank asset quality in South Africa is sensitive to the total value of gold exports. It is evident from the profitability measures that the interest income on loans is the most suitable profitability measure of bank asset quality. This study provides an original contribution to bank asset quality determinants and recommends that regulators should pre-emptively determine the impact of new legislation on bank asset quality. Furthermore, interest income on loans as a profitability measure provides the most accurate results. Lastly, a single-country bank asset quality analysis is important, especially for economies that have commodity exports that significantly weigh in on the bank asset mix. / Die termyntransformasie rakende deposito's is die primêre dryfkrag vir groei in die ekonomie: Lenings maak dit vir leners moontlik om fondse te bestee, wat die ekonomie laat groei. Indien hierdie leners hul lenings egter nie kan terugbetaal nie, gaan die gehalte van bankbates agteruit, wat tot wanpresterende lenings of, nog erger, tot 'n ekonomiese krisis kan lei. As begryp kan word hoe makro-ekonomiese en mikro-ekonomiese bepalende faktore op die gehalte van bankbates in Suid-Afrika inwerk, kan dit bydra tot kennis van die verskynsel van bankbategehalte in die Afrika-konteks. In die lig van die 2008/2009 wêreldwye finansiële krisis, die uitvaardiging van nuwe wetgewing en die waarde van gouduitvoere bied die Suid-Afrikaanse ekonomie ’n geleentheid om ’n oorspronklike bydrae te lewer tot kennis van die bepalende faktore wat bankbategehalte beïnvloed. Benewens die bestudering van die bepalende faktore van die gehalte van bankbates wat in navorsing redelik omstrede is, het hierdie studie ten doel om, wanneer 'n bank se winsgewendheidsbepalers, naamlik opbrengs op bates, opbrengs op ekwiteit (eiekapitaal) en rente-inkomste op lenings, met mekaar vergelyk word, vas te stel of daar ’n superieure opbrengsbepaler van wanpresterende lenings bestaan. Vir hierdie studie is ’n regressieontleding van paneeldata uitgevoer, en daar is van ’n gebalanseerde paneelbenadering gebruik gemaak om die bepalende faktore van bankbategehalte te bestudeer. Hierdie benadering herkontekstualiseer die bestaande bankbategehalteteorie vir die Suid-Afrikaanse finansiële sektor. Die resultate van die studie dui daarop dat Suid-Afrika nie veerkragtig is om die uitwerking van wêreldwye finansiële krisisse teen te werk wat met internasionale handelskakelings deursyfer nie en dat reguleringsveranderinge nie dadelik die bankbategehalte verbeter nie; dit kan inteendeel die korttermynbategehalte verlaag. Bowendien is die bankbategehalte in Suid-Afrika gevoelig vir die totale waarde van gouduitvoere. Dit blyk uit die winsgewendheidsmaatstawwe dat die rente-inkomste op lenings die mees geskikte winsgewendheidsmaatstaf van bankbategehalte is. Hierdie studie lewer ’n oorspronklike bydrae tot die bepalers van bankbategehalte en beveel aan dat reguleerders vooruit reeds die uitwerking van nuwe wetgewing op bankbategehalte moet bepaal. Daarby voorsien rente-inkomste op lenings as winsgewendheidsmaatstaf die akkuraatste resultate. Laastens is ’n ontleding van ’n enkele land se bankbategehalte van belang, in die besonder vir ekonomieë met kommoditeitsuitvoere wat beduidend tot die samestelling van bankbates bydra. / Kadimo ya nako ye kopana ya ditipositi ke mokgwa wo bohlokwa wa kgolo ya ekonomi, ka ge dikadimo di dumelela baadimi go šomiša matlotlo, go realo e le go godiša ekonomi. Efela, ge baadimi ba sa kgone go lefela dikadimo tša bona, boleng bja thoto ya dipanka bo a phuhlama, go feleletša go e ba le dikadimo tše di sa šomego gabotse goba, go feta fao, phuhlamo ya ekonomi. Kwešišo ya ka fao ditaetšo tša makroekonomi le maekroekonomi di huetšago boleng bja thoto ya panka ka Afrika Borwa e ka ba le seabe go tsebo ya taba ya boleng bja thoto ya panka go ya ka seemo sa Afrika. Ka lebaka la mathata a ditšhelete a lefase a 2008/2009, tsebišo ya molao wo moswa le boleng bja dithomelontle tša gauta, ekonomi ya Afrika Borwa e fa sebaka seabe sa mathomo tsebong ya ditaetšo tšeo di huetšago boleng bja thoto ya panka. Go tlaleletša nyakišišong ya ditaetšo tša boleng bja thoto ya panka tšeo di ganetšwago nyakišišong, maikemišetšo a nyakišišo ye gape ke go laetša ge eba taetšo ya letseno le legolo la dikadimo tše di sa šomego gabotse di gona ge go bapetšwa ditaetšo tša poelo ya panka, e lego letseno la dithoto, letseno la dišere le letseno la dikadimo. Nyakišišo ye e šomišitše tshekatsheko ya poelomorago ya datha ya phanele, ya go šomiša mokgwa wa phanele wo o lekaneditšwego, go nyakišiša ditaetšo tša boleng bja thoto ya panka. Mokgwa wa go tšwetšapele gape teori ya boleng bja thoto ya panka ya lekala la Afrika Borwa la ditšhelete. Dipoelo di laetša gore Afrika Borwa ga e fokole kgahlanong le khuetšo ya mathata a ditšhelete a lefase ao a rothelago ka dikamanong tša kgwebišano ya boditšhabatšhaba le gore diphetogo tša taolo ga di kaonafatše boleng bja thoto ya panka ka lebelo, gomme di ka fokotša le boleng bja thoto bja paka ye kopana. Go feta fao, boleng bja thoto ya panka ka Afrika Borwa bo ela hloko boleng bja palomoka bja dithomelontle tša gauta. Go a bonagala go tšwa go dikgato tša tiro ya poelo gore letseno la tswala godimo ga dikadimo ke kgato ya poelo ye maleba gagolo ya boleng bja thoto ya panka. Nyakišišo ye e fa seabe sa mathomo ditaetšo tša boleng bja thoto ya panka gomme e šišinya gore balaodi ba swanela go laetša e sa le ka pela khuetšo ya molao wo moswa ka ga boleng bja thoto ya panka. Go feta fao, letseno la tswala godimo ga dikadimo bjalo ka kelo ya tiro ya poelo le go fa dipoelo tše di lebanego gabotse. Sa mafelelo, tshekatsheko ya boleng bja thoto ya panka ya naga e tee, kudu diekonomi tšeo di nago le dithomelontle tša ditšweletšwa tšeo gagolo di dumelelago motswako wa thoto ya panka. / Business Management / Ph. D. (Management Studies)