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This study investigated the causal interactions between macroprudential policy, measured by the Macroprudential Policy Index (MPI), and financial cycles represented by the Aggregate Financial Cycle (AFC) and the Credit and Asset Prices Financial Cycle (CAFC) in South Africa from 1970q1 to 2023q2. Additionally, the study explored the effects of macroprudential policy during different phases of financial cycles. Using the time-varying Granger-causality model, the study found that the MPI Granger-caused financial cycles during the 2003/07 credit boom in South Africa, while the AFC and CAFC Granger-caused macroprudential policy during the Covid-19-induced collapse of financial markets. The results suggest that macroprudential policy is employed more proactively during financial booms and more reactively during financial busts in South Africa. The Markov switching dynamic regression model used to assess the MPI's effects revealed that macroprudential policy's effectiveness is stronger during financial busts and weaker during financial booms in South Africa. This is because financial institutions in South Africa tend to resist stricter regulations during boom phases due to heightened optimism about future prospects. Conversely, they are more receptive to stimulatory interventions during bust phases. Based on these findings, it is recommended that the South African Reserve Bank and the Prudential Authority use macroprudential policy more assertively during financial booms to enhance its effectiveness. This could involve setting more stringent parameters upon activating macroprudential policy tools or complementing macroprudential policy with monetary policy during financial booms.

Averting the risk of falling short on the expected profitability of a bank requires the knowledge of the underlying determinants. Knowledge of long-run underlying determinants of profitability assists banks in comprehensive planning. In this backdrop, the paper seeks to identify the long-term fundamental risk factors and their impacts on their profitability. The FM-OLS regression method is employed using annual data on the components of profitability as well as internal and external determinants of profitability of Amalgamated Bank of South Africa (ABSA) bank from 1998 to 2014. The study is particularly importance since bank-specific studies aimed at identifying long-run fundamental factors of profitability has not been given much attention in literature. Evidence from the study indicates that profitability of ABSA is cointegrated with its determinants. It is further observed that, with the exception of inflation and GDP, all the determinants have significant long-term impact on profitability. However, although size has significant impact on net interest margins, its impact on return on equity is insignificant. The results further suggest that capital and stock market capitalization pose risk to aggregate profitability of ABSA. It is therefore recommended that in future, ABSA should resort to optimal equity financing to maximize its expected profitability.

This study explored the bank-specific and macroeconomic factors influencing capital adequacy in South African commercial banks. In this research, a balanced panel data set comprising 11 recapitalized banks was employed, spanning the period from 2008 to 2019. Employing panel regression techniques including OLS, Fixed Effects, Random Effects, and the Generalized Method of Moments (GMM), the analysis examines the influence of profitability (ROA), bank size, leverage, broad money supply, and the central bank’s monetary policy rate on the Capital Adequacy Ratio (CAR). The results indicate that profitability, bank size, leverage, and the broad money supply are critical determinants of capital sufficiency. Banks with increased profitability and increased exposure to the money supply typically demonstrate more robust capital positions. Larger bank size and increased leverage levels negatively affect capital adequacy ratios. The little impact of the delayed CAR signifies minimal persistence in capital buffer methods over time, implying that banks may not significantly depend on prior year capital conditions in their current capital planning. The study highlights the complex nature of capital sufficiency, influenced by microeconomic factors such as size and leverage, as well as macroeconomic indices like the money supply. The findings substantiate the Capital Buffer Theory and furnish critical insights for regulators, bank executives, and policymakers seeking to bolster the resilience of the banking industry in South Africa.

The COVID-19 pandemic triggered a global economic crisis that significantly impacted the South African banking sector, already weakened by a pre-existing recession. While bank profitability and credit quality declined, stock market reactions appeared less severe, indicating a potential disconnect between fundamentals and investor behaviour. This study explores the influence of investor sentiment on credit risk, lending, and performance (ROA) of selected JSE-listed banks during the pandemic, incorporating behavioural finance perspectives. Panel regression analysis reveals that COVID-19 had a significant negative effect on stock, ROA and ROE, driven by heightened uncertainty and rising non-performing loans. Liquidity and capital positively influenced returns and ROE, reflecting investor confidence in resilient banks. Investor sentiment had a weakly positive impact on returns, but a significant negative effect on both ROA and ROE, suggesting that excessive optimism may have led to riskier lending practices and reduced profitability. Larger banks underperformed in terms of returns, likely due to operational complexity during the crisis. These findings highlight the critical role of behavioural factors in shaping financial outcomes during systemic shocks and provide new insights into emerging market banking dynamics under crisis conditions.

This study assesses the determinants of bank deposit flows under changing economic conditions by applying the dynamic panel two-step generalized methods of moments technique to annual observations covering 2007 to 2022 of 12 commercial banks in South Africa. The analysis revealed past deposit flow, profitability, bank size, and capital adequacy ratio as constituting a set of bank-specific variables with a positive predictive influence on deposit flows. At the same time, expenditure drives an adverse impact on deposits. These dynamics posit important implications for efficiency in bank expenditure management to sustain the inflow of depositors’ flows. Also, the results show the existence of a positive relationship between the unemployment rate and deposit flow, which is unexpected in practice, as an increase in joblessness in the country implies a decline in the financial capacity of the population to contribute to bank saving portfolios. However, the unexpected interaction between unemployment and deposit flow in this context can be explained by the adaptive principles of market interactions as the relationship between financial variables is unlikely to be the same under different economic conditions. Moreover, the analysis shows a positive effect of the economic condition on deposit flows which implies that an increase in national productivity exerts an impressive on the flow of depositors' funds to the banks based on market expansion and rapid growth momentum. Based on the findings, strategies to ensure the sustenance of a conducive macroeconomic environment should be reinforced by policymakers as the dynamics of bank deposit flows are linked to the direction of the current economic condition.

This study explored the bank-specific and macroeconomic factors influencing capital adequacy in South African commercial banks. In this research, a balanced panel data set comprising 11 recapitalized banks was employed, spanning the period from 2008 to 2019. Employing panel regression techniques including OLS, Fixed Effects, Random Effects, and the Generalized Method of Moments (GMM), the analysis examines the influence of profitability (ROA), bank size, leverage, broad money supply, and the central bank’s monetary policy rate on the Capital Adequacy Ratio (CAR). The results indicate that profitability, bank size, leverage, and the broad money supply are critical determinants of capital sufficiency. Banks with increased profitability and increased exposure to the money supply typically demonstrate more robust capital positions. Larger bank size and increased leverage levels negatively affect capital adequacy ratios. The little impact of the delayed CAR signifies minimal persistence in capital buffer methods over time, implying that banks may not significantly depend on prior year capital conditions in their current capital planning. The study highlights the complex nature of capital sufficiency, influenced by microeconomic factors such as size and leverage, as well as macroeconomic indices like the money supply. The findings substantiate the Capital Buffer Theory and furnish critical insights for regulators, bank executives, and policymakers seeking to bolster the resilience of the banking industry in South Africa.

The COVID-19 pandemic triggered a global economic crisis that significantly impacted the South African banking sector, already weakened by a pre-existing recession. While bank profitability and credit quality declined, stock market reactions appeared less severe, indicating a potential disconnect between fundamentals and investor behaviour. This study explores the influence of investor sentiment on credit risk, lending, and performance (ROA) of selected JSE-listed banks during the pandemic, incorporating behavioural finance perspectives. Panel regression analysis reveals that COVID-19 had a significant negative effect on stock, ROA and ROE, driven by heightened uncertainty and rising non-performing loans. Liquidity and capital positively influenced returns and ROE, reflecting investor confidence in resilient banks. Investor sentiment had a weakly positive impact on returns, but a significant negative effect on both ROA and ROE, suggesting that excessive optimism may have led to riskier lending practices and reduced profitability. Larger banks underperformed in terms of returns, likely due to operational complexity during the crisis. These findings highlight the critical role of behavioural factors in shaping financial outcomes during systemic shocks and provide new insights into emerging market banking dynamics under crisis conditions.

This study assesses the determinants of bank deposit flows under changing economic conditions by applying the dynamic panel two-step generalized methods of moments technique to annual observations covering 2007 to 2022 of 12 commercial banks in South Africa. The analysis revealed past deposit flow, profitability, bank size, and capital adequacy ratio as constituting a set of bank-specific variables with a positive predictive influence on deposit flows. At the same time, expenditure drives an adverse impact on deposits. These dynamics posit important implications for efficiency in bank expenditure management to sustain the inflow of depositors’ flows. Also, the results show the existence of a positive relationship between the unemployment rate and deposit flow, which is unexpected in practice, as an increase in joblessness in the country implies a decline in the financial capacity of the population to contribute to bank saving portfolios. However, the unexpected interaction between unemployment and deposit flow in this context can be explained by the adaptive principles of market interactions as the relationship between financial variables is unlikely to be the same under different economic conditions. Moreover, the analysis shows a positive effect of the economic condition on deposit flows which implies that an increase in national productivity exerts an impressive on the flow of depositors' funds to the banks based on market expansion and rapid growth momentum. Based on the findings, strategies to ensure the sustenance of a conducive macroeconomic environment should be reinforced by policymakers as the dynamics of bank deposit flows are linked to the direction of the current economic condition.

This study investigated the causal interactions between macroprudential policy, measured by the Macroprudential Policy Index (MPI), and financial cycles represented by the Aggregate Financial Cycle (AFC) and the Credit and Asset Prices Financial Cycle (CAFC) in South Africa from 1970q1 to 2023q2. Additionally, the study explored the effects of macroprudential policy during different phases of financial cycles. Using the time-varying Granger-causality model, the study found that the MPI Granger-caused financial cycles during the 2003/07 credit boom in South Africa, while the AFC and CAFC Granger-caused macroprudential policy during the Covid-19-induced collapse of financial markets. The results suggest that macroprudential policy is employed more proactively during financial booms and more reactively during financial busts in South Africa. The Markov switching dynamic regression model used to assess the MPI's effects revealed that macroprudential policy's effectiveness is stronger during financial busts and weaker during financial booms in South Africa. This is because financial institutions in South Africa tend to resist stricter regulations during boom phases due to heightened optimism about future prospects. Conversely, they are more receptive to stimulatory interventions during bust phases. Based on these findings, it is recommended that the South African Reserve Bank and the Prudential Authority use macroprudential policy more assertively during financial booms to enhance its effectiveness. This could involve setting more stringent parameters upon activating macroprudential policy tools or complementing macroprudential policy with monetary policy during financial booms.

Stokvel is a term used in South Africa to denote an informal saving club. A large population of South Africa are members of one stokvel or the other. A large amount of stokvel savings go unaccounted for in the banking sector resulting in distortions in the flow of funds in the banking sector. Thus, the objective of this paper was to establish the presence of a long-run relationship and causality between stokvel savings, money supply, gross domestic product growth rate and banking sector liquidity in South Africa. Applying the Autoregressive Distributed Lag (ARDL) and Error Correction Model (ECM) techniques on quarterly time series data for the period from 1987Q3 to 2020Q1, the study reveals that in the long run, stokvel savings and money supply were found to have a negative relationship with banking sector liquidity albeit insignificant, however, gross domestic product growth rate exhibited a negative and statistically significant relationship at 1%. The coefficient of the error correction model (ECM(-1)) was, as expected, negative and statistically significant thus providing evidence of a short-run relationship. This study concludes that informal savings must be included in the formal banking services to harness the cash that is held by the informal sector and thus improve banking sector liquidity while minimizing the prevalence of financial disintermediation.