F-statistic 3.226080 Durbin-Watson stat Prob(F-statistic) 0.000063

1.922517

The variable GDP per capita has a negative sign; a prolonged economic recession and downturns coupled with falling per capita GDP is likely to increase the scope of default on loans, especially in the most depressed sectors of the economies. In the most extreme cases, runs on banks during falling GDP per capita are also accompanied by a rapid decline in per capita income in real terms [World Bank (1998)].<sup>40</sup> In this particular case, domestic savings may be one of the possible transmission channels from economic downturn to banking crisis. In particular, the most affected countries witnessed a dramatic fall in their saving rates over the crisis period. For instance, domestic saving which averaged over 25 per cent of GDP between 1980 and 1985, fell to about 18 percent between 1996 and 2003 in Cameroon. A similar pattern was observed in Kenya, where average saving rates fell from over 16 percent of GDP to a little over 8 percent over the same period [World Bank (2004)].<sup>41</sup> The sign associated with GDP per capita is consistent for the full panel and the sub-panel of non-CFA countries. In spite of the smaller probability value associated with these two panels, it is worth pointing out that the estimated coefficient associated with this determinant is extremely low, however, reflecting a possible dual causality between per capita GDP growth and impaired loans. Falling per capita GDP and hence, income may erode domestic savings and ultimately lead to a banking crisis in a recessionary context. Conversely, a prolonged banking crisis may ultimately lead to economic downturns, possibly through the savinginvestment channels.

Among the remaining significant macro variables, real interest rate, broad money supply (M2) and changes in real effective exchange rate have positive signs for the full sample, suggesting a positive covariance structure with nonperforming loans. More specifically, a real exchange rate appreciation may have weakened the performance of export-oriented sectors of the economy, and exacerbated the banking crisis, especially for economies which are highly dependent on exports. This was the case for a number of countries in the CFA subpanel. These countries witnessed a rapid appreciation of their currency in the 80s and early 90s. When coupled with a deterioration of terms of trade, some of these countries, especially Cameroon and Côte d’Ivoire, the leading coffee and cocoa exporters, were dramatically affected by the banking crisis in the 90s, partly as a result of large concentration of loans in the depressed agricultural export sectors [Daumont et al. (2004)]. The much smaller probability value associated with changes in real effective exchange rate for countries in the CFA sub-panel may indeed reflect the relatively strong correlation with nonperforming loans and real exchange rates appreciation.

However, for a number of macroeconomic regressors, the probability value is unexpectedly high for the full panel and across sub-panels of CFA and non-CFA countries. This is especially the case for inflation and domestic credits provided by banks. For the latter regressor, the probability largely exceeds the 10 per cent threshold level. Although much lower for inflation, it is still relatively high, suggesting that inflationary pressures may not have played a critical role in the rapid accumulation of impaired loans in the 1990s. Indeed,

> 40 In Cameroon for instance, per capita income fell by over 50 percent in real terms [Emini and Fofack (2004)]. 41 Invariably, banking crises are associated with falling saving rates across Sub-Saharan Africa. Negative trends are also observed in Ethiopia, Zimbabwe and Côte d’Ivoire. In the latter, average saving rates fell from over 21 per cent of GDP in the early 80s to less than 16 per cent in the early 90s.

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