An analysis of factors affecting commercial bank liquidity in Zimbabwe: 2010:Q1-2016:Q2.

Abstract

The study empirically explored the impact of Money Supply, Interest Income, Stock Market Turnover, Exports, Total Loans, Bank Size and Government Revenue on commercial bank Liquidity in Zimbabwe for the period 2009 first quarter to 2016 second quarter. The main aim of the study was to determine the factors fuelling the banking sector liquidity crisis in Zimbabwe. It made use of the panel data Fixed Effects model estimation technique for analysis. The regression results show that Bank Size and Money Supply are highly significant at the 1% level of significance with negative and positive coefficients respectively implying that operational efficiency and the central bank’s monetary policy are both vital for commercial bank liquidity. Stock Market Turnover is statistically significant at the 90% confidence interval while Exports, Total Loans and Interest Income are all statistically significant at the 5% level. However Government Revenue was found to be statistically insignificant. Money Supply has a weak coefficient suggesting that the country’s monetary policy is of less importance as long as the country has no control over the dollar hence there is need for the central bank to be heavily financed to facilitate funding of the interbank market so as to instil confidence in the money and credit markets. In addition, the unbanked society needs to be banked so as to improve the efficacy of the monetary policy. Thus the central bank has to keep on pushing their financial inclusion agenda until the majority of the populace is banked.