Geographic Complexity and Bank Risk : Evidence from Cross-Border Banks in Africa

I construct a novel dataset to measure the geographic complexity of cross-border African banks and relate it to their default and earnings risk. The results suggest that a higher degree of geographic complexity decreases risk. Further results show that the negative relationship between geographic complexity and risk is significantly channeled from changes in loan quality. Following the recent exit of major international banks from Africa, indigenous African banks could be encouraged to expand further across Africa to take advantage of available opportunities in addition to diversifying their risk. Success of such expansions, however, may largely depend on effective credit management