Information, institutions and banking sector development in West Africa

Using a new panel dataset for banks in eight West African countries, we explore the factors that exacerbate or alleviate excess liquidity, and the factors that promote or retard the rate of growth of banks’ assets. Loan default rates in the region are high, and variations in the rate impact on liquidity and asset growth. However, the size of this effect is very sensitive to bank age. Some types of improvement in the quality of governance reduce excess liquidity and promote asset growth. However, the impact of other types of improvement, particularly with regard to corruption, is ambiguous. We uncover evidence that provides an explanation for this ambiguity.