The effects of the bank supervisory framework on bank performance: Policy implications for Botswana based on a cross-country analysis of a group of African countries

Very few of the empirical studies used to determine the relationship between bank supervision and the performance of banks have included variables that explicitly capture bank regulatory or supervisory framework. This research is aimed at filling that shortage by empirically estimating the impact of the structure, the independence and scope of bank supervision on bank performance. Those variables are investigated alongside other determinants of bank profitability in the ordinary least squares models used to establish the impact of supervisory framework on bank performance in Botswana and the rest of the sampled countries.; As it is common in many other countries, banking in Botswana is a very important industry in the mobilization of resources from savers to borrowers, hence banks play a critical role in funding investments that generate economic development and growth. Banks are also important in providing a conduit through which the central bank can achieve its monetary policy objectives. Based on this importance of banks, the banking industry remains amongst the most highly monitored and regulated industries in Botswana and throughout the world.; A commonly cited reason for bank supervision is the reassurance of investors about the safety of their funds. Governments have therefore, normally assumed the role of establishing investor confidence in banking and financial industries through banking supervision conducted by central banks. Once investor confidence is maintained, investment may flourish in a country boosting economic development and growth.; The primary objective of this thesis is to examine how bank profits and net interest margins respond to a supervisory authority which meets at least one of the following criteria; it operates in solitude, it is politically independent, its scope of responsibility extends to non-bank financial institutions and the central bank is part of the supervisory authority. The findings of the research suggest that the existence of a single bank supervisor reduces financial returns of banks, while the participation of the central bank in bank supervision improves profits and net interest margins of banks. Extending the scope of the supervisory authority to non-bank financial institutions and protecting the bank supervisor from political influence produced insignificant results.