Bank Stability and the Financial Performance of Commercial Banks in South Sudan

Abstract

The main purpose of the study was to examine the influence of bank stability on the financial performance of commercial banks in South Sudan. The study was guided by the CAMEL model metrics in measuring stability and its effect on the financial performance of commercial banks measured by ROA and ROE. Further the study proposed to review the moderating effect of ownership structure on the relationship between bank stability and financial performance of banks. It was primarily grounded on the CAMEL model, theory of systemic risk, agency theory, efficient structure theory and the theory of the firm. The study further adopted the positivism philosophy as a guide for the research. The research employed a descriptive research design. The population for the study was all the 29 commercial banks in South Sudan from which the research targeted one senior manager for primary data collection. The research further targeted one representative from the central bank of South Sudan and the Association of banker‘s in South Sudan. Further the study utilized the census sampling in selecting the 31 sample respondents. It relied on a mixed methodology which encompassed both quantitative and qualitative data. Secondary data was collected for the period 2012-2017 from audited annual financial reports of individual banks and from the Central Bank of South Sudan reports, while primary data was collected by use of a semi-structured questionnaire. The research utilized both descriptive and inferential statistical methods in the analysis. The findings of the research were presented using frequencies, percentages, means, standard deviation, correlation coefficients, charts, tables and other statistical measures. The pilot tests results indicated that all the research constructs had passed the internal consistency tests as indicated by the Cronbach Alpha tests. Further the research sought the expert view of the director of cooperative department at the Central Bank of South Sudan (CBSS) in testing the validity of the research instruments as well as the input of the appointed supervisors who guided the construction of the research instrument. The study was able to obtain a 95% response rate from the sample population. The correlation tests indicated a positive effect of asset quality on the financial performance of commercial banks p= .784; and a positive effect of management efficiency p= .758 and liquidity p= .620. The results also showed a positive effect of capital adequacy on the financial performance p= .007.The study concluded that there is positive influence of bank stability on the financial performance of commercial banks in South Sudan (R2 = .539, Sig = .000). It recommends that banking institution should expand their products offerings and create a sound credit policy that will support introduction of lending products in the country and help banks in making loan loss provisions. It further recommends that commercial banks should consider new income diversification strategies as a tool of expanding their earnings. Commercial banks should further adopt an elaborate liquidity risk management policy that will among other things guide the bank in designing its liquidity mix. The study further recommends that the government in collaboration with the banking sector regulator should adopt policies that will support public-owned and private-local banks to compete effectively with the larger foreign-owned and joint venture banking firms. The study experienced limitations in the secondary data due to inconsistent financial reporting and limited adoption of international financial reporting standards and adherence to Central Bank standards.