Is There a Case for National Development Banks in Africa? Conceptual Rationale and Empirical Evidence

Abstract

National development banks remain an important part of modern financial systems in developed as well as developing countries. The attention to the role of national development banks was reinvigorated in the aftermath of the 2008 global financial crisis, and their potential role in promoting access to finance and providing counter-cyclical financing is better appreciated today than in the structural adjustment era of the 1980s and 1990s. In this context, this study examines the landscape of national development banks in Africa and provides empirical evidence of their role in complementing commercial banks to meet the financing needs of the real sector using bank-level data from selected countries and the BankFocus database. The empirical results show that while national development banks do not lend more relative to commercial banks, they tend to focus more on medium-term and long-term lending as prescribed by their mandate. Interestingly, medium-term and long-term lending is associated with lower non-performing loan ratios as well as higher returns on assets. The results are similar for public banks. The evidence suggests that empowering national development banks with enhanced lending capacity and operational autonomy would significantly help alleviate the shortage of medium-term and long-term credit in African economies. The paper includes suggested avenues for further research.