article · Law and Economy
An investigation into financial institutions across the Central African Economic and Monetary Community examines how diversification influences financial performance and institutional competition. Using regional regulatory and economic data spanning from 2000 to 2021, the research evaluated metrics including liquid assets, non-interest income, inflation, and non-bank financial institutions. The analysis reveals that diversification factors account for over half of the variation in the financial performance of these institutions. The results demonstrate that diversification significantly affects financial outcomes across the region. Additionally, the findings highlight risks tied to policies that encourage commercial banks to expand lending towards state-owned enterprises and government bodies. To maintain institutional health and avoid penalties, the outcomes emphasize adhering to strict liquidity management in line with established international regulatory standards such as Basel III.
A resilient banking system is vital for economic stability. Understanding how diversified assets, liquidity, and lending practices affect institution performance helps regional regulators design better safeguards. It also cautions policymakers against directing bank credit towards state entities, protecting the wider financial system from potential instability and ensuring institutions remain compliant with international standards.
The findings provide applied guidance for banking executives, risk managers, and financial regulators in Central Africa seeking to calibrate asset allocation and liquidity buffers. While immediately relevant for policy reform and internal bank risk management frameworks, the abstract does not indicate a product-based application pathway or technology commercialisation route.
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This paper sought to investigate the effect of diversification on the financial performance of financial institutions in the CEMAC region. Data for the study was collected from COBAC National Bureau of Statistics website, BEAC and the World Bank Statistics reports regarding the activities of financial institutions in the region for the period 2000 to 2021. The collated data was run with the aid of STATA software version 13.0. The researcher used regression analysis (PCSE, PanelGLS) to investigate the effect of diversification (liquid asset to cash, non-interest income to total income, inflation, non-bank financial institution and LGDP) on the financial performance of financial institutions in the region. Finally, Driscool-Kraay regression technique was used to investigate the influence of diversification on competition among these financial institutions. The findings from the PCSE regression showed that diversification explained 56.4% (R2 = 0.564) of the variation in financial performance. In conclusion, it was revealed by the regression analysis that diversification had a significant effect on the financial performance of financial institutions in the region. The findings suggest that policymakers should carefully consider the implications of incentivizing banks to increase their lending to government and state owned enterprises. While such policies might aim to support national development goals, they can inadvertently lead to detrimental effects on the financial sector’s health. The study recommends that the emphasis on liquidity aligns with regulatory frameworks that mandate certain liquidity ratios, such as those outlined in Basel III. Maintaining higher liquidity positions helps banks meet regulatory requirements and avoid penalties, which can be financially detrimental.
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DOI: 10.63593/le.2788-7049.2025.06.001
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