International Journal of Economics and Financial Issues

The Impact of Mortgage Rates on Mortgage Refinancing

Collins C. Ngwakwe — 2024-03-18

Mortgages loans are vital for the acquisition of housing property and mortgage lending rates play an important role in mortgage market trends, borrowers, and lenders’ decisions. Objective: the aim of this paper is to evaluate the combined effect of current and previous mortgage rates on mortgage refinancing. Prior work: the paper inclines on the ontology of a single reality of the interaction between mortgage rates and mortgage refinancing with attendant epistemology that their interaction is measurable. Method: the paper adopts the positivist paradigm and a quantitative technique. It used data on the U.S. Mortgage Bankers Association (MBA) retrieved from the economic and financial database of Fusion Media. Data were analysed using the OLS technique. Novel Findings show that current-actual and previous mortgage rates have a significant positive effect on mortgage refinancing at p=0.05 and p=0.04 respectively. Significance: the findings have implication for mortgage lending and refinancing decisions for mortgage bankers (lenders), mortgage borrowers and policy makers. It also provides current academic study material for university business schools and for future researchers to apply the model used in this research for related expanded research. Value: The paper contributes a new model with two genres of mortgage rate (current mortgage rate and previous mortgage rate) and how these two types of mortgage rates influence mortgage refinancing.

Forecasting Stock Market Realized Volatility using Random Forest and Artificial Neural Network in South Africa

Lamine Diane — 2024-03-18

Volatility is often used as a key input into several financial models, yet there is still no consensus on the best-performing model in forecasting stock market returns volatility. Conventional time series models such as GARCH are the preferred models in the literature. However, this project aims to first adopt two novel non-linear machine learning algorithms, namely the Random Forest and Artificial Neural Network (ANN). The project then compares the performance of these two models in predicting stock market realized volatility for the JSE Basic Material Index (JBIND) and the JSE Financials Index (JFIN) over a period of five years. Based on the results of the project, the Random Forest model outperformed the ANN model for both the JFIN and JBIND index. Lastly, the COVID effect on the model’s performance was also considered and the results show that the negative impact of COVID on the model’s performance is ambiguous.

Determinants of Financial Literacy and its Effect on Stock Market Participation among University Students in Ghana

Marshall Wellington Blay — 2024-03-18

The study examined determinants of financial literacy and stock market participation in Ghana. The study also examined the relationship between financial literacy and stock market participation among university students in Ghana. The study involved surveying 400 University of Ghana students to assess their level of financial literacy, stock market participation, and explore potential influencing factors. The study analysed data using ANOVA and multiple regression analysis. The findings of the study revealed that students exhibited limited knowledge in various financial literacy areas, including interest compounding, time value of money, inflation, money illusion, stocks, bonds, mutual funds, and investment risk diversification. Moreover, the study identified male, older, postgraduate students, and those with more working experience as comparatively more financially literate and active participants in stock market activities. Additionally, a positive relationship between financial literacy and stock market participation in Ghana was established. Other determinants of stock market participation included age, gender, course of study, and income levels. Based on these findings, it is recommended that the Ministry of Education implement significant initiatives to enhance financial literacy education among tertiary students. Furthermore, financial institutions should increase advertising efforts to promote awareness about various financial products.

Pension Management Challenges and Retirement Life Experiences: A Policy Implication

Samson Adewumi — 2024-03-18

Remarking on the discourse of pension management in Nigeria, scarce research attention can be traced to the understanding of pension management challenges and life after retirement experience through the prism of policy implication. To address this gap, the study assesses the pattern of pensioners’ life after retirement, the arrays of pension management challenges, and appropriate policy implications for effective pension management. A mixed-method research approach was employed. 345 retirees were randomly recruited and administered a questionnaire, and 18 purposively semi-structured interviews were conducted with the Federal Parastatals and Private Sector Pensioners Association of Nigeria. Quantitative data were analyzed with the frequency distribution and the Q-Q plot to determine the normal probability plot, while the NVivo (12) qualitative software was used for the identification of themes and sub-themes from the transcribed data. Findings revealed prolonged health challenges, poverty, and abrupt pension payment as life after retirement experiences. Verification bottleneck, poor monitoring and evaluation efforts, and administrative incompetency were issues around pension management challenges. The implication includes addressing political interference in pension management and administration, safeguarding retirees’ savings through legal commitment, and a call for employers’ contributions. The study recommends that the National Pension Commission become more responsive in its role of providing quality pension service, especially in terms of quality leadership, monitoring, and evaluation of Pension Fund Administrators.

A Comparative Analysis between Intrinsic and Extrinsic Drivers of Inflation

Thomas Habanabakize — 2024-03-18

In most economies, particularly in developing countries, addressing inflation remains a significant macroeconomic challenge. This study seeks to examine the factors, both internal and external, that contribute to inflationary trends in South Africa. To achieve this objective, the authors employ the Johansen cointegration test, vector error correction approach, impulse response function, and variance decomposition on quarterly time series data spanning from 1994 to 2022. The findings of the study provide compelling evidence suggesting that both internal and external factors play a statistically significant role in influencing inflation. However, external forces exert a greater impact on the inflationary pressures witnessed in South Africa when compared to internal factors. Notably, factors such as trade openness, exchange rates, and imported prices contribute significantly to the elevated inflation rate in South Africa. On the other hand, internal factors like sustainable government expenditure, interest rates, and net export prices prove effective in mitigating the inflation rate.

Navigating Financial Performance of the MENA Region Energy Sector: The Interplay of Working Capital and Leverage

Ahmed Elgayar — 2024-03-18

This research delves into the influence of leverage considering potential outcomes within operational funds concerning the fiscal implications of the energy industry within the middle east and north Africa region. The research employed an empirical approach by collecting secondary data from the MENA region's energy sector between 2018 and 2022. To achieve this, the study formulated three hypotheses and utilized the empirical random panel data model. The investigative results affirm the validity of all three hypotheses. Additionally, they provide insights into the relationships among the variables in these hypotheses. Particularly noteworthy is the fact that certain results from the hypotheses contradict the expected theoretical impact. The article suggests that future researchers should delve into additional factors influencing firm performance, recognizing that diverse variables may yield varied outcomes. Broadening the study's scope by incorporating different timeframes and a more diverse array of firms could enhance the overall representativeness of research findings. Expanding this inquiry beyond the energy sector to encompass various industries might offer a comprehensive understanding of how working capital affects firm performance across distinct economic sectors. Subsequent empirical studies are advised to consider global health crises, political events, and other socio-economic developments in the MENA region. Examining events such as the COVID-19 pandemic and ongoing geopolitical conflicts like the Russian-Ukrainian and Israeli-Palestinian conflicts could illuminate how such incidents impact of the association among cash reserve, leverage, and company efficacy. To gain deeper insights into the causal distinctions among financial resources, and production form the company, researchers might investigate bidirectional results between each pair of variables using Granger causality tests. The findings from the present study are pertinent for energy sector companies, policymakers, and academia. Future research endeavors could focus on scrutinizing how the implications of operating funds on company procedures change when moderated by additional factors related to macroeconomics, providing practical insights for decision-makers.

Tourism, Financial Development and Sectoral Development in ECOWAS Countries: Empirical Evidence from the CS-ARDL Approach

Prao Yao Séraphin — 2024-03-18

This study examines the role of financial development in the relationship between tourism and sectoral development in 12 ECOWAS countries over the period 2003-2020. Methodologically, it mobilized the Cross-sectional Augmented Autoregressive Distributed Lag (CS-ARDL) model developed by Chudik and Pesaran (2015), which takes cross-sectional dependence and heterogeneity into account. The results reveal that tourism hurts the development of the agricultural and industrial sectors in both the short and long term. Financial development harms the agricultural sector, while it improves the development of the industrial sector in both the short and long term. On the other hand, tourism associated with a developed financial sector improves the development of the agricultural sector and also the industrial sector. This result suggests that the contribution of tourism to sectoral development in ECOWAS countries depends on the level of financial development.

Exploring the Nexus of Capital Market and Investor Behaviour: A Systematic Literature Review

Gautam Milind Gokhale — 2024-03-18

This review paper delves into the intricate interplay between capital markets, investor protection, portfolio strategies, and behavioural aspects in investments. The VOSviewer 1.6.19 software is utilised to perform a bibliometric analysis and a exhaustive systematic literature review on a sample of 248 papers published in journals in Web of Science databases. Our comprehensive analysis reveals the emergence of key themes, shedding light on the critical role of behavioural finance in shaping investment choices and outcomes. We explore how investor behaviour often deviates from traditional models of market efficiency and how these deviations impact portfolio construction and investment strategies. Our paper contributes to a deeper comprehension of the complexities that drive investment decisions and helps academics, society, investors, and regulators by providing a structured analysis of literature strands. Builds a basis for better regulation and protection of investors in the capital markets, with relevant information for future studies on investor behaviour.

Simulating Credit Loss Distributions: Empirical Versus the Vasicek Model

Natasa Milonas — 2024-03-18

Because credit losses can be substantial, managing credit risk is a focus area of risk measurement and management. It is important for financial institutions to select credit risk models that accurately forecast losses. The Basel Committee on Banking Supervision (BCBS) chose the closed-form single risk factor Vasicek model for regulatory capital calculations. In this article, its forecast accuracy is compared with empirical loss distributions using simulated probabilities of default and losses given default. The effect of altering probabilities of default on asset correlations was analysed and how this affects credit portfolio loss distributions. The robustness of the Vasicek model against five different portfolios with unique compositions was explored: results highlight two key findings. Firstly, the Vasicek model is a good approximation of credit losses for a portfolio that does not contain dominating loans (it is, after all, based on the assumption of large-scale homogeneity). Secondly, the Vasicek model is a good approximation for expected loss (ELs) but lacks accuracy when determining extreme unexpected losses (ULs). Finally, credit capital requirements as a function of two variables are presented which reveals novel ways of viewing these values.

Analysing the Life Satisfaction of Risk-averse and Risk-loving Investors in South Africa

PA Shenjere — 2024-03-18

Financial well-being is normally referred to as a person’s contentment with their financial situation. The level of life satisfaction among investors may vary depending on factors such as their risk tolerance and demographics. Demographic variables such as age and gender may influence an investor’s life satisfaction, which, in turn, could influence their financial decisions. Furthermore, an investor’s willingness to take risks can also affect financial decisions, ultimately influencing their life satisfaction. The objective of this paper is to identify and determine the influence of demographics and risk tolerance levels on individual investor life satisfaction. Secondary data were obtained in the private domain from an investment company that collected 1 059 from its client base. The results of this research paper indicated that there is a significant difference between the satisfaction of life of risk-averse and risk-loving investors. Risk-averse investors showed a negative relationship with life satisfaction, while risk-loving investors showed a positive relationship. This meant that the more risk-averse investors were, the lower the life satisfaction, indicating that high life satisfaction was accompanied by high risk. A significant difference was also found between life satisfaction and age and gender. Male investors were more satisfied with their lives than female investors. Older investors experienced higher levels of life satisfaction compared to investors in other age groups. As a result, these findings will make a considerable contribution to the way financial managers create investment portfolios for their clients.

The Role of Corporate Social Responsibility, Ownership Structure, and Gender Diversity in Firm Performance

Suha Alawi — 2024-03-18

Corporate social responsibility (CSR) is now at the heart of corporate sustainability, and as such should have a significant impact on firm performance. However, the ownership structure (OS) is one element in the inner functioning of corporate governance (CG). Further, diversity by gender is one of the variables affecting FP. This paper examines the impact of CSR, ownership structure and gender diversity on FP. That is, we use panel data from non-financial firms in South Asian economies. Data for the years 2010-2022 are drawn from players 'DataStream. We use fixed effect, GMM (generalized method of moments) analysis and propensity score matching to study the data. However, we discover CSR and ownership concentration as well as institutional ownership and gender diversity have positive impacts on FP. study provides the policy implications for both investors and firms. As FP increases with more CSR activities, investors prefer to invest in firms that are more socially connected. Firms should provide more chances to the women on the board to improve performance. Further, ownership structure helps to overcome agency costs, therefore, investors are more attracted to provide funds to the firms that have a higher share of concentrated and institutional ownership.

Demographic and Sociocultural Determinants of Financial Literacy in South Africa

Michael du Preez — 2024-03-18

Financial literacy is rapidly becoming more important as financial markets continue to evolve and new and more complex financial products are introduced. This study investigates the relationship between demographic and sociocultural variables and the level of financial literacy of individual investors in South Africa. This study is significant as it provides policymakers with target areas to provide incentives towards financial education programmes. Secondary data were obtained from a private domain where a private investment company collected primary data using an electronic quantitative survey. The sample consisted of 1, 059 individual investors. The study found that people over 50 years of age, men, whites, people with common-law spouses, and people who owned homes without a mortgage payment reported the highest degree of financial and investment knowledge. Groups that reported a low degree of financial and investment knowledge were individuals between the ages of 35 and 49, females, coloureds, divorced individuals, and individuals living with relatives. Health status and education were positively correlated with the financial and investment knowledge of individual investors. Policymakers should aim to target the groups identified by the study that show a low degree of financial literacy with financial education to promote wealth creation, which could benefit the economy by promoting investment and economic participation while simultaneously trying to address structural issues such as poverty and inequality.

Industry 4.0 in Finance, Digital Financial Services and Digital Financial Inclusion in Developing Countries: Opportunities, Challenges, and Possible Policy Responses

Favourate Y. Mpofu — 2024-03-18

Fintech and the adoption of Fourth Industrial Revolution (industry 4.0) technologies have expanded the provision and uptake of digital financial services (DFSs) globally. Digital transformation in the financial industry intended to modify financial service provisioning by reducing the costs of accessing and challenges such as inaccessibility due to remoteness, not having a bank account, not having a credit history, or having erratic incomes. Digital financial inclusion (DFI) aims to ensure that financial services, such as deposits, payments, transfers, withdrawals, investments, accessing insurance and credit, checking account balances, receiving money, and making international remittances, are conducted conveniently, easily, safely, reliably, and affordably. DFI focuses on ensuring access to financial services through digital channels and platforms for individuals, businesses, and households, to promote financial inclusion for all stakeholders, especially previously financially excluded groups. Through a critical review of the literature, this study explores the opportunities and challenges of DFI or the adoption and use of DFS. The review unpacks the possible benefits of using DFSs, which include the broadening financial inclusion, increasing diversity and innovation in the financial services sector, attainment of the SDGs, reduction of poverty, increased economic growth, and minimization of the gender financial inclusion gap, as well as reduction in inequalities. The constraints include the inadequacy of digital infrastructure, taxes on DFS, literacy challenges, digital exclusion, poverty and the gender divide, risks, and lack of trust in the financial services sector. The study recommends appropriate regulation and oversight, literacy enhancement initiatives, investment in digital infrastructure, and increased consumer protection as measures to improve DFI in developing countries.

Socio-Economic Indicators and their Impact on Sustainable Economic Development: An In-depth Analysis of Egypt

Muhammad Eid Balbaa — 2024-03-18

This research paper investigates the sophisticated relationship between socio-economic indicators and sustainable economic development in Egypt, employing a Linear Regression Model to provide an accurate analysis. Focusing on key variables such as Population, Life Expectancy at Birth, and Labor Force, the study seeks to discern their impact on Gross Domestic Product (GDP). With R Square of 0.9443, the model exhibits strong explanatory power. Noteworthy coefficients include a positive relationship between Population and GDP (β = $9,302.27), a negative relationship between Life Expectancy at Birth and GDP (β = -$45.77 Bln), and a positive relationship between Labor Force and GDP (β = $10,097.49). These findings contribute subtle insights to the literature and offer policymakers valuable information for fostering sustainable economic development in Egypt.

The Impact of COVID-19 on Banking Sector Returns, Profitability, and Liquidity in South Africa

Faeezah Peerbhai — 2024-03-18

The COVID-19 pandemic, which initially started as a health crisis, has had widespread economic impacts on various industries in the global economy. The banking sector, in particular, was significantly impacted by fiscal and monetary responses which were implemented to reduce the closure of several businesses and stabilize markets. Given that banks are regarded as systemically important financial institutions, this heightened uncertainty increased the possibility of a financial crisis because instabilities in the banking sector could have further detrimental effects on national and global economies. Therefore, the objective of this study was to explore the effect of the COVID-19 pandemic on the South African banking sector. To achieve this objective, the study analysed the returns, profitability, and liquidity of banks listed on the Johannesburg Stock Exchange using a panel regression approach. Together, the results of the study revealed that the profitability and liquidity of banks were negatively impacted by the COVID-19 pandemic, however, the excess bank stock returns generated by investors were not affected. These findings may serve as reference to policymakers when developing policies which regulate the banking sector in order to improve performance and ensure liquidity during periods of increased market uncertainty.

Exploring the Spatial Dynamics of FEW Nexus Policies and Their Impact on Income Inequality Using Spatial Econometric Models: Evidence from Southeast Asian Countries

Khambai Khamjalas — 2024-03-18

This research investigates the spatial dynamics of Food, Energy, and Water (FEW) Nexus policies in Southeast Asian countries, analyzing their impact on income inequality. Utilizing spatial econometric models, the study explores intricate spatial patterns and employs spatial lag models along with a panel Granger causality test. Examining data from variables such as population, urbanization, life expectancy, GDP, HDI, CO2 Emission and energy consumption, our findings reveal significant spatial dependencies and causal relationships. The study enhances understanding of spatial dimensions in policy impacts for sustainable development, offering valuable insights for targeted FEW Nexus interventions to address income inequality in Southeast Asia.

Banking Regulation and Financial Soundness Nexus in View of the Crisis: An Islamic Banking Perspective

Yomna Daoud — 2024-03-18

The COVID-19 pandemic significantly affected global finances and economies, posing a risk of global GDP decline. This research examines the soundness and dynamics of Islamic banks from 2017Q1 to 2023Q1. The study focuses on eight countries selected based on the systemic importance of their Islamic banks: Saudi Arabia, UAE, Bahrain, Oman, Pakistan, Malaysia, Brunei, and Indonesia. The analysis is based on several key indicators including size, profitability, non-performing financing, and capital adequacy. Our analysis shows that the Islamic banks' response to the pandemic is not uniform across jurisdictions. Saudi Arabia and Southeast Asian countries (Malaysia and Indonesia) are expected to remain stable. This reflects the Islamic banks' desire to integrate more closely into the global financial system by holding higher capital adequacy ratios. Effective banking regulation is necessary to ensure the stability and credibility of the financial industry. Other regions may face challenges that require additional policies to ensure the stability of their Islamic banking sectors. Several financial soundness indicators and jurisdictions have shown notable improvements, with some levels reaching pre-pandemic levels. This reflects the effectiveness of the COVID-19 policy support measures implemented since 2020.

The Effect of Earnings Smoothing and Earnings Informativeness on Firm Value with Managerial Ability as a Moderating Variable

Candra Sinuraya — 2024-03-18

This study's goal is to find out how earnings informability and income smoothing affect firm value, with managerial ability as a moderating variable. A quantitative method was used, and financial statements that were listed on the Indonesia Stock Exchange served as the source of the data. The sample population comprised 255 companies within the Consumer Non-Cyclicals and Consumer Cyclicals sectors, with a 4-year study period from 2017 to 2020. In addition, a total of 154 companies were selected based on the inclusion criteria, and 616 observations were carried out. This study used data from an emerging market country, namely Indonesia, which was known as the most promising investment destination. The results showed that earnings smoothing did not affect firm value, while earnings informativeness had a significant effect. The relationship between income smoothing and firm value was unaffected by managerial skill, even though it increased the correlation between earning informativeness and firm value. In line with these findings, company leaders must choose managers with high skills in financial management. These skills can greatly influence the impact of earnings informativeness on firm value.

Nexuses between Food, Energy, and Water Consumption on Urban-Rural Income Gap in South-Eastern Asian Countries Using Difference in Difference in Modelling Technique

Khambai Khamjalas — 2024-03-18

South Asian countries are still battling hunger and poverty, especially in rural areas. Empirical evidence attributes the urban-rural income gap to inadequate infrastructure, such as electricity and water supply. This article uses a difference-in-difference model to examine how emerging trends in Food, Energy, and Water (FEW) resources influence the urban-rural income gap. Using data from 2000 to 2019 from China, Indonesia, and India, the results showed that high food insecurity increases income inequality, whereas electricity supply significantly reduces the income gap. Thus, Asians should ensure a sustainable and equitable distribution of FEW resources to improve agricultural productivity and create jobs.

A Panel-corrected Standard Error (PCSE) Framework to Estimate Capital Structure and Banking Performance within the Tunisian Context

Manel Zidi — 2024-03-18

The objective of this article is to empirically examine the effect of financing structure on the market share of banks, and their performance in Tunisian banks. To this end, we gathered financial statements of ten commercial banks over the period 2012-2019, and we employed the panel-corrected standard error (PCSE) regression. The empirical results show that the bank capital structure measured by the equity to total assets ratio negatively affects bank performance while the debt to total assets ratio can be a robust and positive driver of bank performance. Through this research, we recommend to Tunisian commercial banks to reduce their operating costs through a better management of their resources, and to find cheaper sources of financing such as increasing equity. We also recommend to Tunisian commercial banks to diversify further their revenues in order to enhance their performance and to generate more profits.

Visualisation of Mahalanobis Distances for Trivariate JOINT Distributions

Emily Groenewald — 2024-03-18

The Mahalanobis distance is a statistical measure used to quantify the distance between elliptic distributions with distinct locations and shared shapes, while accounting for the variables' covariance structure. It is applicable to both estimative and predictive estimation approaches, where variations are limited to location, and it assesses the similarity or dissimilarity between data and the mean (centroid) of a multivariate distribution, within the family of multivariate elliptic distributions. It is thus useful for outlier identification. The aim of the study is to provide, for the first time, a three-dimensional visualisation of the Mahalanobis distance when the underlying framework comprises three jointly connected variables (rather than the standard two variables presented in textbooks). Data with Mahalanobis distances exceeding a predefined threshold, determined using a distribution, are considered outliers. This approach is analogous to identifying outliers for univariate distributions based on critical values derived from confidence levels. While the literature mainly discusses the Mahalanobis distance formulation for bivariate distributions, we extend the discussion to include one additional variable and provide a visualisation of the resulting Mahalanobis distance for a trivariate distribution. An empirical example is presented to illustrate a practical application of a trivariate Mahalanobis distance. Visualising outliers alongside other historical events within three-factor systems can offer valuable insights into the risk profile of the current environment and assess the probability of future extreme events.

How Financial Literacy Impacts Financial Well-Being: The Influence of Financial and Technical Efficacy

Naznin Sultana Chaity — 2024-03-18

The fundamental human resource that influences financial well-being is financial literacy. People are more likely to save and invest if they understand the time value of money, credit, insurance, and investments. Having a sound financial understanding lessens stress and increases financial well-being. This study used a structured survey questionnaire and back-translated it into Bangla to ease readability for the respondents. Four hundred thirty-five invitations were sent mainly to the Dhaka city dwellers’ and only 253 complete responses were retained for analysis. Partial least squares structural equation modeling (PLS-SEM) is used to assess the intercorrelations and validate the measurement model among the constructs (financial attitude, behavior, knowledge, self-efficacy, technological self-efficacy, and financial well-being) using SmartPLS version 4. The result found a full mediation effect among financial behavior, financial self-efficacy, and financial well-being. Partial mediation effects are found among financial attitudes toward financial self-efficacy, technological self-efficacy, and financial well-being.

Mobile Money Use, Digital Banking Services and Velocity of Money in Ghana

Evans N. N. D. Ocansey — 2024-03-18

Investigating the correlation between digital financial services, mobile money usage, and money velocity in Ghana, the study analysed time series data spanning from 1992 to 2022. A composite index was constructed by principal component analysis using data extracted from the world development indicators, with the components mobile money usage, digital financial services, and velocity of money. The estimation utilised an impulse response function and vector error correction model; the results indicated that mobile money, digital financial services, and money velocity are related in both the short and long term. Furthermore, the application of a standard deviation innovation to the velocity of money produced increases of both positive and negative magnitude for all the variables. This suggests that mobile money, digital banking services, and velocity of money in Ghana are interdependent in an asymmetric manner. In order to facilitate an increase in the velocity of money, the research concluded that policymakers should guarantee that a greater proportion of the population has access to mobile money and digital banking services. In addition to promoting mobile money, online banking services, and digital payment methods on purpose, the government should reduce reliance on physical currency and expedite the circulation of money. It is recommended that future longitudinal studies involving African nations employ diverse estimation techniques.

Money Supply, Banking and Economic Growth: A Cross Country Analysis

Ahmad AlHarbi — 2024-03-18

The primary objective of the research is to understand the interactions between money supply, banking and economic growth for effective policy interventions and business decisions. Based on annual data for the time period (2004-2021), descriptive analysis, correlations, causality tests and panel data regressions are analyzed for a sample from India, Saudi Arabia and UAE to draw conclusions. The results favored the ‘intermediation theory’ and were contrary to the ‘credit creation’ theory of banking. It was observed that the GDP of a country can be efficiently explained by financial soundness, broad money, loans and deposits for a country. Also, that the GDP of a country influences banking loans and deposits but not vice versa. The monetary policy of the sample was questioned by the finding that GDP causes banking loans and banking deposits but not vice versa. This important finding will add to the effectiveness in business decision making.