The implications of bank risk-weighted capital and ownership on portfolio rebalancing, profitability, and stability: evidence from Tanzania

Mchembe, Renatus Anathory

The implications of bank risk-weighted capital and ownership on portfolio rebalancing, profitability, and stability: evidence from Tanzania

Thesis / Dissertation

2024

Publisher

University of Cape Town

Department

Department of Finance and Tax

Faculty

Faculty of Commerce

Abstract

Banks are vital for economic growth and development as they mobilise and channel the flow of funds from surplus to deficit units and help to finance government expenditure by investing in government securities, among other activities. Bank activities are especially crucial in developing countries, due to underdeveloped financial markets, as they often dominate the financial sector. The banking crises of the last three decades have resulted in increased macroprudential regulations to protect the banking sector against the risk of failure emanating from banks' loan portfolios. A key element of these regulations is usually the prescription of minimum risk-weighted capital ratios. However, this can potentially affect bank profitability and in an attempt to rebalance their capital risk profile to match regulatory requirements, banks may alter the balance between bank lending (higher risk activities) and low risk activities, such as investment in government securities. Contradictory evidence exists on the relations