The Impact of the COVID -19 Pandemic on the Lending Activities of Banks in Zambia

Abstract

The COVID-19 pandemic brought disruptions to the global economy, including Zambia is banking sector, significantly affecting lending activities. This study investigates the impact of the pandemic on lending practices in Zambian banks. Specifically, the study aims to assess changes in lending activities, evaluate the effects of key factors such as lending rates, liquidity ratios, and non-performing loans (NPLs), and examine the effectiveness of regulatory measures implemented during the crisis. This study adopts a quantitative research approach, utilizing a correlational research design to analyse the relationships between the pandemic and lending practices. It is based on secondary data obtained from 2016 to 2023 from institutions such as the Bank of Zambia, the World Bank, and the Zambia National Public Health Institute. The econometric model incorporates various variables, including lending rates, liquidity ratios, loan applications, non-performing loans (NPLs), and COVID-19 infection rates. Data analysis was performed using descriptive and inferential statistics, employing tools such as vector error correction models and the Johansen test to evaluate the long-term relationships between the variables. Findings reveal a slight reduction in lending rates from 26.046% to 25.99% due to accommodative monetary policies, a surge in loan demand during the pandemic, increased liquidity ratios from 117.2% to 141.98%, and a marginal rise in NPLs from 8.4% to 8.6%. The Bank of Zambia's initiatives, including the Targeted Medium-Term Refinancing Facility, effectively stabilized the banking sector. The study concludes that while the pandemic posed significant challenges, strong regulatory responses and institutional resilience mitigated its impact. Key recommendations include strengthening liquidity management frameworks, promoting digital financial solutions, and diversifying loan portfolios. Additionally, enhancing financial literacy and fostering public-private partnerships can improve stability and inclusivity in the sector. This research underscores the importance of robust policy interventions and adaptive banking practices in navigating future economic crises.