Financial regulations and financial stability in Burundi

Abstract

The main objective of this study is to evaluate the effectiveness of financial regulations on financial stability in Burundi. The study is conducted using data ranging from 2010-2020 and a Structural Vector Autoregressive model. Three (3) variables (bank regulatory capital to risk weighted assets, liquidity coverage ratio and Z-score) are used. Financial stability in Burundi does not benefit from bank regulatory capital to risk weighted assets and liquidity coverage ratio. The variance decomposition (Z-score) confirms the results. An innovation in bank regulatory capital to risk weighted assets explains 18.98% of the fluctuation of financial stability and a standard deviation shock in liquidity coverage ratio explains 20.53%. The weakness of this variance decomposition results is due to the short period (11 observations) of the variables. As the Central Bank reports confirm that financial institutions in Burundi are resilient to shocks and sable, another scenario is conducted using variables potentially relevant for financial stability. Private credit by deposit money banks to GDP (%) and bank deposits to GDP (%) are chosen regarding to the length of period. The impulse response of Z-score to the innovation in bank deposit is positive for all the period. A permanent positive response of Z-score (statistically insignificant) for the shock in bank deposit confirms that financial stability in Burundi benefits from bank deposits to GDP (%). The impulse response of Z-score to the change in private credit is negative and statistically insignificant. The variance decomposition (Z-score) confirms the results. An innovation in bank deposit explains 69.08 % of the fluctuation of financial stability and a change in private credit by deposit money banks to GDP (%) explains 13.32% of the fluctuation of financial stability.

Date of Award	15 Sept 2022
Original language	English
Awarding Institution	University of Namur
Supervisor	Yuliya Rychalovska (Supervisor) & Julia JESIONEK (Co-Supervisor)