Title:
LIQUIDITY CREATION AND TESTING IN THE ZAMBIAN BANKING SECTOR: AN APPLICATION OF CAPITAL ADEQUACY, CUSTOMER DEPOSIT BASE AND RETURN ON ASSETS

Authors:
Manyando Sikanda, Mubanga Mpundu, Agape Kapasa, Zambia

Abstract:

The paper focuses on liquidity creation and testing of financial variables which would lead to the formation of a macro model to be used by Zambian commercial bank regulatory bodies such as Bank of Zambia when coming up with rules or interventions to help manage liquidity in the Banking Sector. The study further focused much on both the market and funding risks banks might face and demonstrated how the macro pressure-testing model would be designed and implemented. The research was done by reviewing the financial statements of all commercial banks in Zambia from 2008 to 2018. All Zambian banks were selected to ensure more accurate finding that represent the entire banking industry as different bank’s face unique liquidity challenges. It was thus important to appreciate the unique challenges so that a model is developed that addresses all such liquidity encounters. This was purely a quantitative study as it required the review of a huge quantity of financial data. It was generally found that high capital and deposit base position has a positive impact on liquidity of banks. It was further established that return on assets among the two other reviewed variables namely capital adequacy and customer deposit base did not have a significant impact on the liquidity of banks in Zambia divergent to other studies done in developed countries.