Financial stability in Africa: A reliance on knowledge transfer and the digital economy

Abstract

This study examines the role of digital technologies in moderating the effect of knowledge transfer on financial stability in 54 African countries from 2000 to 2021, employing the two-step system GMM strategy. The following conclusions have been reached: first, knowledge transfer enhances financial stability and improves the performing loans ratio in Africa. These findings remain consistent across the franc zone and among low – and middle-income economies. Second, the results reveal that digital technologies improve Africa’s financial sustainability. Furthermore, when knowledge transfer and specific digitalisation indicators interact, they have negative interactive effects on financial stability. However, the net effects indicate favourable synergies in bank Z-scores and loan performance, achieved at higher digital penetration. Additionally, it is recommended that digitalisation be encouraged to reduce systemic risk that could cause the system to become unstable.