Analysis of Commercial Banks Liquidity Risk in Zimbabwe (2009-2019)

Abstract

The study explored the impact of liquidity risk on the profitability of Commercial Banks in Zimbabwe. The research was enthused by the expedition to determine the impact of the main factor that affects profitability namely liquidity risk which in this case has Loans to Deposit Ratio (LDR) as a proxy. The study included other factors that influence profitability namely credit risk, bank specific factors (bank age and market share) and macroeconomic factors (Gross Domestic Product (GDP) and Inflation). The study used panel data from five commercial banks listed on the Zimbabwe Stock Exchange in Zimbabwe for the period 2009 to 2019. Data was collected on biannual bases which made the data a robust and balanced panel data. The study used Random Effects Model (REM) as specified by Hausman specification test for analysis henceforth leaving out other panel data analysis techniques such as Fixed Effects Model and Pooled Ordinary Least Squares. All the analysis was done using STATA version 14. It was established that liquidity risk has a negative impact on the performance of commercial banks in Zimbabwe. In addition, the study found that credit risk which is a proxy for non-performing loans was found to have a statistically positive significant impact on the performance of commercial banks in Zimbabwe. Other variables such as bank age, inflation and gross domestic product were found to have some influence on the profitability of commercial banks in Zimbabwe. It is therefore imperative for commercial banks in Zimbabwe to monitor and to the best of their ability mitigate liquidity risk to improve performance of financial sector for the benefit of economy and the country at large.