Opinion

Money Talks: South Sudan Commercial Banks Performance [Part 2]

Dr. Bak Barnaba Chol

Ownership Structure in Commercial Banks:

The study further sought to examine the commercial bank ownership structure in South Sudan. This was examined in accordance to the ownership category presented by the central bank of South Sudan. In the current study ownership was assessed on the basis of the composition of major shareholders who control the board and the decision making across individual commercial banks within South Sudan. The regulator categorizes banks into Joint Venture, Private local owned, Public owned and foreign owned. The findings of the study indicated that the majority of the commercial banks 38% (n=9) 48 observations (6 of the banks were not in operation in 2012) were from Joint Ventures, 29% (n=7) 42 observations were foreign owned, 25% (n=6) 36 observations were private-local owned respectively while only 8% (n=2) 11 observations were from public owned commercial banks (One of the banks was not in operation in 2012). This indicates that commercial banking sector within South Sudan is predominantly controlled by foreign and local investors with minimal government-owned banks in the sector.

Regression Results

The main objective of the research was to examine the influence of bank stability on the financial performance of commercial banks in South Sudan. The regression summary results indicated that 53.9% variation in the financial performance of the banks can be explained by the CAMEL model indicators R2= .539. These results are in agreement with (Bekele, 2015; Kabir & Dey, 2014) who indicated that CAMEL model components can explain the financial performance of commercial banks.

From the ANOVA model the study found out that F- (critical f; 1.162) = 39.306, sig = .000 indicating that the research model was statistically significant in indicating there is a positive and significant effect of bank stability on the financial performance of Commercial Banks. These findings are in agreement with previous work by (Mohiuddin, 2014; Tripathi, Meghani, & Mahajan, 2014) who indicated there is statistically significant relationship between the CAMEL model indicators and the financial performance of commercial banks.

Effect of Joint Venture ownership on Bank Stability and Financial Performance

The study run a regression analysis to determine the moderating effect of joint venture ownership structure on the relationship between bank stability and the financial performance of commercial banks and the regression summary shows that the moderating variable explains 53.9% (R2= .539) variations in the financial performance of commercial banks. With the moderating variable factored in the effect improves to 59.8% (R2= .598). This implies that the joint ownership structure has a positive effect on the relationship between bank stability and the financial performance of commercial banks in South Sudan. Lawrence (2017) pointed out that consolidation of commercial banks into larger ventures was positively related with increased financial performance of commercial banks.

Effect of Foreign Ownership on Bank Stability and Ownership structure

The study runs a regression analysis to determine the moderating effect of foreign ownership structure on the relationship between bank stability and the financial performance of commercial banks. The regression model summary indicates that bank stability without the moderating variable explains 53.9% (R2= .539) variations in the financial performance of commercial banks. With the moderating variable factored in the effect improves to 73.3% (R2= .733). This implies that the foreign ownership structure has a positive effect on the relationship between bank stability and the financial performance of commercial banks in South Sudan. Abdallah, Amin, Sanusi, and Kusairi (2014) also indicated that foreign ownership of commercial banks had a positive effect on the financial performance of commercial banks in South Sudan.

Effect of Private-Local Ownership on Bank Stability and Financial Performance

The study runs a regression analysis to determine the moderating effect of private-local ownership structure on the relationship between bank stability and the financial performance of commercial banks. The regression model summary indicates that bank stability without the moderating variable explains 53.9% (R2= .539) variations in the financial performance of commercial banks. With the moderating variable factored in the effect improves to 75.6% (R2= .756). This implies that the private local ownership structure has a positive effect on the relationship between bank stability and the financial performance of commercial banks in South Sudan. Sharma, and Arora, (2016) also pointed out that private owned commercial banks had better financial performance.

Effect of Public Ownersip on Bank Stability and Financial Performance

The study run a regression analysis to determine the moderating effect of public ownership structure on the relationship between bank stability and the financial performance of commercial banks. The regression model summary indicates that bank stability without the moderating variable explains 53.9% (R2= .539) variations in the financial performance of commercial banks. With the moderating variable factored in the effect improves to 61.6% (R2= .616). This implies that the public ownership structure has a positive effect on the relationship between bank stability and the financial performance of commercial banks in South Sudan. These results were not consistent with James and Shaban, (2017) who indicated that public owned banks were less profitable than other financial institutions.

Summary, Conclusion and Recommendations

The general premise of the study was to interrogate the effect of bank stability on the financial performance of commercial banks in South Sudan. This was specifically examined through the adoption of the CAMEL model as indicators of bank stability. The research further examined the effect of ownership structure; constructed as a moderating variable, and how it affects the relationship between the bank stability and the financial performance of commercial banks in South Sudan. The results of the research indicated that there was a positive and significant effect of ownership structure, bank stability and the financial performance of commercial banks.

Conclusions

The findings of the study indicated that CAMEL components had a statistically positive effect on the financial performance of commercial banks. The study concludes that strengthening the CAMEL components can foster the soundness of commercial banks in South Sudan. The research further concludes that commercial banks should ensure there is regular examination of the CAMEL components to ensure the institution meets the optimal CAMEL model rating scores. The study found that a unit increase in foreign ownership would lead to increase financial performance of commercial banks. Further to a varying degree the study established that domestic ownership of the bank significantly affects the financial performance of commercial banks. The study further noted that most private-local and public owned commercial banks had significant problems in raising their core capital, had poor asset quality and were unable to generate sufficient earnings. The study concludes that from a regulatory standpoint the CBSS should come with new policy changes that are geared towards improving the financial status of public owned and private local banking institutions to limit the growing dominance of foreign institutions and joint venture firms.

Recommendations

The study recommends that there is need for commercial banks to improve their performance in terms of their ROEs and ROAs. There has been a general erratic behaviour in the performance on these two specific ratios and it is clear that the overall performance has been sliding down; hence banks should undertake measures that will counter any negative impact on their overall financial performance.

The study further recognizes that the nascent development of the banking institutions within the South Sudan sector has been noticed by the Bretton woods institutions. The study recommends that through bilateral engagements the Central Bank of South Sudan could engage the IMF and World Bank experts in designing better statutory policies as well as seeking extended cushionary reserves injection that will help in expanding the growth and operation of indigenous banking institutions.

In respect to the ownership levels of commercial banks the study notes that the South Sudan banking industry has come of age has witnessed by the increasing proliferation of foreign banking institutions within the sector. The study recommends that the regulator should develop a comprehensive policy that will guide the setting up of foreign banking institutions in the country.

The study recommends that due to their advanced capacity and growth foreign banking institutions should be compelled to shed part of their equity to local individual investor or institutional investor to develop a sense of ownership within the country. Further the government should develop policies that will support local banking institutions to be able to comprehensively compete with the larger foreign owned banks.

Dr BBC is a financial economist, Business and Financial analyst. He holds a doctorate degree from United States International University. His areas of research interest are Banking, economics, entrepreneurship and finance. You can reach him via Email: alukchan@gmail.com

Phone: 0929001008

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