Banking Market Structure and Bank-Lending Channel of Monetary Policy in Zambia

Abstract

This paper investigates the impact of banking market competition on the effects of monetary policy tightening on bank lending to households in Zambia. The two-step system GMM is applied using annual balanced panel data spanning a 14-year period from 2010 to 2023. Bank lending to households (BLH) is the dependent variable whereas monetary policy rate (MPR), banking market competition (COM), and the interaction term (INT) between the one-year lag of MPR and COM are three explanatory variables. On this note, three hypotheses are tested accordingly. The results present evidence to show that MPR has a negative significant effect while COM and INT have significant positive effects on BLH. The results also indicate that all the four bank-specific factors including capital adequacy ratio (CAR), liquidity ratio (LIQ), and asset turnover ratio (TUR) have positive significant effects whereas non-performing loans growth (NPL) has negative effects on BLH. A macroeconomic variable, inflation rate (INF) also has significant negative effect on BLH in Zambia.