Banking performance and economic growth in the DRC

Abstract

In an economy where financial markets remain underdeveloped, the banking sector plays a central role. In their traditional role of financial intermediation (collecting deposits and extending loans), banks contribute significantly to economic growth by financing domestic consumption and channelling resources toward productive investments. The central question of this study is as follows: “What is the impact of the banking sector’s performance on economic growth in the DRC???

The performance of the banking sector is found to have a significantly positive impact on the DRC’s GDP. We employed a deductive approach and adopted positivism as our logical reasoning and epistemological stance. A sample of 13 out of 15 existing banks was selected using systematic random sampling. The study period spans from 2015 to 2024, a total of 10 years. The literature review was used to collect secondary data contained in audited bank reports, reports from the Central Bank of Congo (BCC), and books and articles. Econometrics was used to specify the dynamic panel model, specifically the error correction model (ECM); The generalized method of moments (GMM) allowed us to identify the long-term dynamics and the short-term equilibrium relationship between the variables, using Stata 16 software. The following results emerged: the existence of a significantly positive short-term relationship between economic growth (GDP) and the performance of the banking sector (ROE) in the DRC. Credit growth and the general price level alone proved to be the two relevant indicators or statistically significant variables in the long term that explain the variability in the DRC’s GDP growth. Financial development and the Corruption Perceptions Index (CPI) are the two factors that influence the DRC’s GDP growth in the short term. The short- and long-term effects of these variables on GDP growth are, respectively: 23.21% (CPI); 4.49% (Credit Growth); - 7.0% (INF); -26.57% (FD); 1.91% (ROE).

JEL Classification: C23, C26, F21, F65, G21, G23, G24, O16, P27

Paper type: Empirical research.