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Commodity price shocks, macroeconomic uncertainty and bank lending behaviour in Zambia: Lessons from the global financial crisis

Time: 13:00-15:00 (UK Time), Wednesday, 26 January 2022
Presenter: Dr. Anthony Simpasa, African Development Bank
Co-author: Dr. Martin W. Nandelenga, KIPPRA

Chair: Professor Victor Murinde, SOAS University of London
Online venue: Click here to join the seminar on Microsoft Teams (For any inquiry about how to join the online seminar, please contact Dr. Meng Xie: xm1@soas.ac.uk

Abstract

Zambia’s debt relief in 2006 under the heavily indebted poor countries initiative created macroeconomic stability after years of fiscal profligacy and slow economic growth. Riding on sustained uptick in copper prices, the return to growth and attendant macroeconomic stability, the government scaled down on domestic borrowing, pushing banks to increase lending to the private sector. The reversal of fortunes in the wake of the global financial crisis in 2008-2009, and the resultant macroeconomic uncertainty, compounded by the fall in price of copper, was evident in banks’ increased risk aversion. To our knowledge, the interplay between commodity price shock and macroeconomic uncertainty on one hand, and banks’ lending behaviour on the other, has not received empirical treatment in Zambia. This paper is therefore a first attempt to exploit the granularity of bank level data to disentangle banks’ lending behaviour in periods of uncertainty with application to the Zambian banking system. Specifically, the paper aims to address the following objectives (i) investigate the sources of macroeconomic uncertainty; (ii) assess if banks’ lending behaviour changed during the global financial crisis in response to macroeconomic and financial uncertainty; (iii) assess banks’ lending behaviour across different bank sizes and type of ownership. The paper builds on the theory of bank optimization behaviour that characterises firm’s investment behaviour modelled along the works of Abel (1983). To mitigate the endogeneity problems that may arise in the analysis, the study utilizes system GMM with bank level quarterly data for the period 1998 – 2018 for commercial banks in Zambia. The findings of this study have important implications for developing and emerging countries regarding banks’ performance and stability as well as central policy response in periods of uncertainty, including in such crises as the COVID-19 pandemic.

Presenter

Dr. Anthony Simpasa is the African Development Bank’s Lead Economist for Nigeria. In this position, Anthony leads the knowledge work and policy dialogue and advisory services to the Federal and subnational governments as well as providing analytical support to lending operations for effective implementation of the Bank’s strategy in Nigeria. He holds a PhD in Economics from the University of Cape Town, South Africa, a Master of Arts degree in Economics from the University of Botswana and a Bachelor of Arts degree from the University of Zambia. Prior to joining the African Development Bank in 2011, Anthony was Manager-Market Studies in Financial Markets Department at the Bank of Zambia. He has also twice been a Visiting Scholar at the International Monetary Fund.

Anthony’s research interests cover areas of banking and finance, financial markets, public finance and fiscal policy and monetary policy and international macroeconomics, growth empirics, and management of natural resource revenues in developing countries and has published on these broad issues in leading peer reviewed journals such as International Economics, African Development Review, Journal of Economic Studies, Managerial Finance, among others. He has also contributed book chapters on the economics of copper revenues in Zambia as well as on real effects of banks’ lending in Zambia.

Anthony is a member of the African Economic Research Consortium and the Global Development Network and Research Fellow, Southern African Institute for Policy and Research.

Dr. Nandelenga is a Senior Policy Analyst in the department of Trade and Foreign Policy, at the Kenya Institute for Public Policy Research and Analysis (KIPPRA), Nairobi, Kenya. He holds a Doctor of Philosophy in Economics from the University of Cape Town, South Africa.  

Prior to joining KIPPRA, Dr. Nandelenga was a lecturer at Egerton University, Kenya. He has also consulted widely with the World Bank, Africa Development Bank and The United Nation Development Program (UNDP). His main research interests are in public finance, financial economics and markets, International trade, econometric modelling and Big data science Applications. 

He is a member of the Africa Economic Research Consortium and a Principal Consultant at the Africa Review of Economics and Finance (AREF) Consult, in Johansenburg, South Africa.