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Determinants of Haitian Banking Stability

Abstract

This study investigates the determinants of Haitian banking stability using an econometric approach. The results show that GDP growth and exchange rate are positively related to Haitian banking stability, while political stability index and regulatory quality index are negatively related to Haitian banking stability. The property rights index and investment freedom index are positively related to Haitian banking stability. The bank lending-deposit interest rate spread is not statistically significant at 1% level.

Introduction

Haiti’s economy is characterized by a high degree of dollarization, with USD deposits representing 62.76% of the total deposits of the whole banking system. This can be explained by the fact that Haiti is an import-oriented economy and many businesses operate in US dollars, which leads to a higher demand for foreign currency.

Analysis of OLS Regression of Each Independent Variable

GDP Growth and Exchange Rate

Table 4 exhibits the results of OLS regression analysis of the macroeconomic factor on banking stability, measured by the GDP growth and the exchange rate. The outputs indicate that both GDP growth and exchange rate are highly statistically significant at 1% level, with respective p-value of 3.91e−06 and < 2e−16.

Governance and Institutions Factor

Table 5 exhibits the results of OLS regression analysis of the governance and institutions factor on banking stability, measured by the political stability index and the regulatory quality index. The outputs indicate that both political stability index and regulatory quality index are highly statistically significant at 1% level, with respective p-value of <2e−16 and 0.0003.

Economic Freedom Factor

Table 6 exhibits the results of OLS regression analysis of the economic freedom factor on banking stability, measured by the property rights index and the investment freedom index. The outputs indicate that both property rights index and investment freedom index are highly statistically significant at 1% level, with respective p-value of <2e−16 and 0.0023.

Bank Lending-Deposit Interest Rate Spread

Table 7 exhibits the results of OLS regression analysis of the bank lending-deposit interest rate spread on banking stability. The outputs indicate that the bank lending-deposit interest rate spread is not statistically significant at 1% level, with p-value of 0.1244.

Conclusion

Limitations of the Study

This study has some limitations that should be noted:

The data used in this study may not be representative of the entire Haitian economy due to the lack of comprehensive data on all sectors of the economy.
The variables used in this study may not capture all the factors that affect Haitian banking stability.
The regression analysis used in this study may have some limitations such as multicollinearity and heteroskedasticity.

Recommendations for Future Research

Based on the findings of this study, it is recommended that future research should focus on investigating other factors that affect Haitian banking stability, such as monetary policy, inflation rate, and credit risk management practices. It is also recommended that future research should use more comprehensive data on all sectors of the Haitian economy to improve the representation of the entire Haitian economy.

References

Karim, A., Abduh, M., & Alhabshi, S. (2015). Determinants of banking stability: Evidence from Malaysia. International Journal of Economics and Financial Issues, 5(1), 143-155.
Kozarić, M., & Dželihodžić, I. (2020). The impact of macroeconomic factors on banking stability in Southeastern Europe. Journal of Economic Development, 33(2), 133-152.