Corruption, institutional quality, and non-performing loans in Sub-Saharan Africa: an empirical investigation

This study examines the relationship between corruption and bank credit risk in Sub-Saharan Africa (SSA) and investigates whether regulatory quality and anti-corruption disclosure (ACD) mitigate this relationship. Drawing on institutional and agency theories, we analyse an unbalanced panel of 127 commercial banks across 32 SSA countries from 2012 to 2023. Corruption is measured using a reverse-coded Corruption Perceptions Index, while ACD is constructed through textual analysis of annual reports. Bank fixed-effects and dynamic System GMM estimations are employed to address unobserved heterogeneity, persistence in non-performing loans (NPLs), and potential endogeneity concerns. The results indicate that higher levels of perceived corruption are associated with significantly higher NPL ratios, suggesting that weak institutional environments contribute to increased credit risk. However, stronger regulatory quality and greater anti-corruption disclosure weaken this relationship, demonstrating the importance of both external institutional oversight and internal governance transparency. The findings remain robust across alternative specifications and organisational subsamples. This study contributes to the banking and governance literature by integrating country-level institutional quality and bank-level governance transparency within a multilevel framework. The results highlight the importance of strengthening regulatory institutions and promoting governance disclosure to enhance bank asset quality and financial stability in emerging markets This study provides new evidence on the relationship between corruption and bank credit risk in Sub-Saharan Africa by demonstrating that higher levels of perceived corruption are associated with increased non-performing loans among commercial banks. Drawing on a unique sample of 127 banks across 32 countries between 2012 and 2023, the research shows that stronger regulatory quality and greater anti-corruption disclosure can significantly weaken the adverse effects of corruption on bank asset quality. The study is significant because it advances understanding of how external institutional conditions and internal governance practices jointly influence financial stability in emerging markets. By integrating country-level regulatory quality with bank-level governance transparency, the research offers a novel multilevel perspective on credit risk management. The findings provide practical insights for regulators, policymakers, bank executives, and international development institutions seeking to strengthen banking-sector resilience through improved governance, regulatory effectiveness, and transparency.