The Impact of the Legal Environment on Bank Profitability: An Empirical Analysis of the Angolan Banking Sector

An efficient legal system facilitates the enforcement of guarantees, enables the recovery of non-performing loans and increases trust between creditors and borrowers. This study examines the effect of the legal environment and the profitability of the Angolan banking sector. Specifically, it analyses the influence of property rights and the rule of law on bank profitability in Angola. The study employs various econometric methods for analyzing panel data, such as Feasible Generalized Least Squares (FGLS), and instrumental variables models such as Two-Stage Least Squares (IV-2SLS), Generalized Method of Moments (IV-GMM) and Quantile Regression (MQREG). The study concludes that improving the legal environment by strengthening property rights and promoting the rule of law favours the profitability of Angolan banks. In terms of practical implications, this study shows that the legal environment in Angola is an important barrier to the promotion of credit in Angola, and, above all, to improving the profitability of banks. This study contributes to the scarce literature highlighting the relationship between the legal system and the Angolan banking sector, a topic that has been little explored in the context of African countries. Furthermore, the study awakens the dormant debate on the legal system and finance.