Intervening role of socioeconomic factors in the loan performance and growth nexus in SSA countries

This study examined the effect of three socioeconomic factors – armed conflicts, income inequality and unemployment, on non-performing loans (NPLs) in sub-Saharan African (SSA). The two-step system generalized method of moments (GMM) is used to analyse the data of 35 SSA countries from 1999 to 2023. The results based on the two-step system GMM estimator reveal that armed conflict, income inequality and unemployment are significant drivers of NPLs in SSA. The finding re-enforces the indispensability of socioeconomic factors in the finance and growth debate, and the importance of the efficiency of the financial system as a self-preserving strategy. Understanding the effect of socioeconomic factors on non-performing loans helps financial system regulators design policies that promote safe and stable financial system. This study contributes to the finance and growth debate by extending the drivers of NPLs to socioeconomic factors. It also extends the debate to SSA, a region with prevalent incidences of unemployment, armed conflict and inequality, and scant empirical literature.