A Study of the Effect of Changes in the Statutory Reserve Ratio Requirement on Commercial Banks Profitability in Zambia
DOI:
https://doi.org/10.5281/zenodo.10802892Keywords:
statutory reserve requirement (srr), financial profitability, return on assets, commercial banks, bank of zambiaAbstract
The study was aimed at studying the effects of changes in the Statutory Reserve Ratio Requirement on commercial banks profitability in Zambia between 2007 to 2017. Time series data, namely, monthly data was used throughout the 11-year study. The study included data from all Zambian commercial banks operating from 2007 to 2017. The study used EViews version 10, for data analysis. Statutory reserves and bank profitability in Zambia were studied using the Autoregressive Distributed Lag (ARDL) model. This research sought to objectively determine how statutory reserves affect bank performance. Performance was measured by ROA. The study found an inverse relationship between statutory reserves and financial performance of commercial banks in Zambia. Beyond statutory reserves, the research also considered the impact of other bank-specific variables on profitability. Specifically, it observed that inflation and open market operation balances exerted negative impact on the commercial banks' performance.
Additionally, the study unveiled an important aspect related to the time horizon for adjustment. The speed of adjustment from short-run dynamics to long-run equilibrium was estimated at approximately 62%. After changes in statutory reserves and other variables, Zambian banks tend to reach a long-term profitability equilibrium point. These findings affect Zambia's banking industry and regulators. It emphasises the need to balance regulatory requirements like statutory reserves with commercial bank profitability. This research advances monetary economics and lays the groundwork for future research due to the changing financial industry and regulatory environment.
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