An Assessment of the Effect of COVID-19 on Credit Risk Management in Banking Industry: A Case of Selected Commercial Banks in Lusaka, Zambia
Journal of Economics, Management and Trade,
Page 19-28
DOI:
10.9734/jemt/2022/v28i730422
Abstract
The Corona-virus disease (covid-19) affected most of the industries in the world including the banking industry. The study sought to assess the effect of Covid- 19 on credit management by Commercial Banks. Six commercial banks were sampled out of the total 19 banks operating in Zambia. The study collected primary data using an online-administered questionnaire. The data was analyzed using descriptive statistics and factor analysis. The study found that there an increase in the non performing loans at the beginning of the pandemic. However, the restructuring of these loan by the banks helped to reduce the number of non performing loans. Commercial banks should have a strategy in place to engage with borrowers as soon as they show signs of distress, and any issues should be adequately addressed. Good strategies can only be developed if banks are able to differentiate between viable, non-viable, and viable but distressed debtors at a granular level, grouping borrowers with similar characteristics and resolving them in a comparable way.
Keywords:
- Corona-virus Disease 2019 (COVID 19)
- Commercial Banks
- credit risk
- debt restructuring
How to Cite
Sinkala, M., Imasiku, S., Mtayachalo, G., & Chanda, M. C. (2022). An Assessment of the Effect of COVID-19 on Credit Risk Management in Banking Industry: A Case of Selected Commercial Banks in Lusaka, Zambia. Journal of Economics, Management and Trade, 28(7), 19-28. https://doi.org/10.9734/jemt/2022/v28i730422
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Bensley E, Chheda S, Schiff R, Stephens D, Zhou N. Remaking banking customer experience in response to coronavirus. McKinsey & Company; 2020.
Berger AN, Molyneux P, Wilson JOS. Banks and the real economy: An assessment of the research. Journal of Corporate Finance. 2020;62(101513).
Available:https://doi.org/10.1016/j.jcorpfin.2019.101513
Borio C. The prudential response to the COVID-19 crisis. Bank of International Settlements. 2020b;1-6.
Available:https://www.bis.org/speeches/sp200630a.htm
Camous A, Claeys G. The evolution of European economic institutions during the COVID‐19 crisis. European Policy Analysis. 2020;6(2):328-341. Available:https://doi.org/10.1002/epa2.1100
Dooseman E, Marchat G, Guillard V. COVID-19: Major risk considerations for the banking sector. Mazars; 2020.
Available:https://financialservices.mazars.com/COVID-19-major-risk-considerations-for-the-banking-sector/
Drugă RI. The importance of social responsibility in the banking sector of Romania, in the context of the COVID-19 pandemic. European Finance, Business, and Regulation, EUFIRE; 2020. Available:https://www.researchgate.net/profile/Elena-
Farzanegan MR, Feizi M, Gholipour HF. Globalization and the Outbreak of COVID-19: An Empirical Analysis. Journal of Risk and Financial Management. 2020;14(3):1-10. Available:https://doi.org/10.3390/jrfm14030105
Flögel F, Gärtner S. The COVID‐19 Pandemic and Relationship Banking in Germany: Will Regional Banks Cushion an Economic Decline or is A Banking Crisis Looming?. Tijdschrift Voor Economische En Sociale Geografie. 2020;111(3):416–433. Available:https://doi.org/10.1111/tesg.12440
Dahl J, Giudici V, Kumar S. Lessons from Asian banks on their coronavirus response. McKinsey & Company; 2020.
Available:https://www.mckinsey.com/industries/financial-services/our-insights/lessons-from-asian-banks-on-their-coronavirus-response.
Deloitte. Navigating financial services sector performance post-COVID-19; 2020.
Available:https://www2.deloitte.com/us/en/insights/economy/COVID-19/COVID-19-financial-services-sector-challenges.html
Demirguc-Kunt A, Pedraza A, Ruiz-Ortega C. Banking Sector Performance During the COVID-19 Crisis. Policy Research Working Paper. 2020;9363:1-49.
Available:https://openknowledge.worldbank.org/handle/10986/34369
Disemadi HS, Shaleh AI. Banking credit restructuring policy amid COVID-19 pandemic in Indonesia. Jurnal Inovasi Ekonomi. 2020;5(02):63-70.
Available:https://doi.org/10.22219/jiko.v5i3.11790
Foss NJ. Behavioral Strategy and the COVID-19 Disruption. Journal of Management. 2020;46(8):1322- 1329.
Available:https://doi.org/10.1177/0149206320945015
Funke M, Tsang A. The People’s Bank of China’s response to the coronavirus pandemic: A quantitative assessment. Economic Modelling. 2020;93:465–473.
Available:https://doi.org/10.1016/j.econmod.2020.08.018
Gursoy D, Chi CG. Effects of COVID-19 pandemic on hospitality industry: review of the current situations and a research agenda. Journal of Hospitality Marketing & Management. 2020;29(5):527-529.
Available:https://doi.org/10.1080/19368623.2020.1788231
Jebarajakirthy C, Shankar A. Impact of online convenience on mobile banking adoption intention: A moderated mediation approach. Journal of Retailing and Consumer Services. 2020;58(7): 102323.
Available:https://doi.org/10.1016/j.jretconser.2020.102323
Jackson HE, Schwarcz SL. Sustainable Economic Growth Support through Credit Transmission Channel and Financial Stability: In the Context of the COVID-19 Pandemic. Sustainability. 2020;13(5):1-34.
Available:https://doi.org/10.3390/su13052692
Mukwena R, Sinkala M. Impact of Covid-19 on the Higher Education Sector in Zambia: Case of Public Universities. 2020;6(7):212.
Available:https://www.ijern.com/journal/2020/July-2020/15.pdf.
Kazmi SSH, Hasan K, Talib S, Saxena S. COVID-19 and Lockdown: A Study on the Impact on Mental Health. 2020;1-13.
Available:http://dx.doi.org/10.2139/ssrn.3577515
Kenny S, Lennard J, Turner JD. The macroeconomic effects of banking crises: Evidence from the United Kingdom, 1750–1938. Explorations in Economic History. 2020;79(101357):1-18.
Available:https://doi.org/10.1016/j.eeh.2020.101357.
Korzeb Z, Niedziółka P. Resistance of commercial banks to the crisis caused by the COVID-19 pandemic: the case of Poland. Equilibrium, Quarterly Journal of Economics and Economic Policy. 2020;15(2):205–234.
httpps://doi.org10.24136/eq.2020.010.
KPMG. Financial resilience in banking – a balancing act; 2020.
Available:https://home.kpmg/xx/en/home/insights/2020/12/financial-resilience-in-banking.html.
KPMG. A catalyst for change for bank branches; 2020.
Available:https://home.kpmg/xx/en/blogs/home/posts/2020/04/a-catalyst-for-change-for-bank-branches.html
KPMG. New ways of working becoming the norm for banks in the new reality. Five predictions for banks as they prepare for the new reality ways of working; 2020.
Available:https://home.kpmg/xx/en/home/insights/2020/07/new-ways-of-working-becoming-the-norm-for-banks.html
Nhamo G, Dube K, Chikodzi D. Restaurants and COVID-19: A Focus on Sustainability and Recovery Pathways. In Counting the Cost of COVID-19 on the Global Tourism Industry. 205-224.
Available:ttps://doi.org/10.1007/978-3-030-56231-1_9
OECD. Policy Responses to Coronavirus (COVID-19). The territorial impact of COVID-19: Managing the crisis across levels of government; 2020.
Available:https://www.oecd.org/coronavirus/policy-responses/theterritorial-impact-of-COVID-19-managing-the-crisis-across-levels-ofgovernment-d3e314e1/
Picoto WN, Pinto I. Cultural impact on mobile banking use – A multi-method approach. Journal of Business Research. 2020;124:620-628.
Available:https://doi.org/10.1016/j.jbusres.2020.10.024
Liang HY, Reichert A. The Relationship Between Economic Growth and Banking Sector Development. Banks and Bank Systems. 2020;1(2):19-35.
Available:https://www.businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/1540/BBS_en_2006_02_Liang.pdf
Laukkanen T, Sinkkonen S, Laukkanen P. Communication strategies to overcome functional and psychological resistance to Internet banking. International Journal of Information Management. 2009;29(2):111–118.
Available:https://doi.org/10.1016/j.ijinfomgt.2008.05.008
McKinsey & Company. Banking system resilience in the time of COVID-19; 2020.
Available:https://www.mckinsey.com/industries/financial-services/our-insights/banking-system-resilience-in-the-time-of-COVID-19
McKinsey & Company. McKinsey’s Global Banking Annual Review; 2020.
Available:https://www.mckinsey.com/industries/financial-services/our-insights/global-banking-annual-review
Naeem M, Ozuem W. The role of social media in internet banking transition during COVID-19 pandemic: Using multiple methods and sources in qualitative research. Journal of Retailing and Consumer Services. 2021;60(102483).
Available:https://doi.org/10.1016/j.jretconser.2021.102483
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