An Investigation of the Relationship between Capital Levels and the Performance of Banks in Zimbabwe from 2009 to 2013

Abstract

The revision of minimum capital requirements by the Reserve Bank of Zimbabwe from US$12.5 million to US$100 million in July 2012 sparked considerable debate as to the likely effects of such a policy. The paper thus investigates the relationship between capital levels and the performance of banks in Zimbabwe for the period 2009-2013. To that end, we used semi-annual time-series data for fourteen banks. Data from individual bank financial records complemented semi-annual data obtained from the Reserve Bank of Zimbabwe, the Zimbabwe National Statistical Agency and the Zimbabwe Stock Exchange. Dynamic panel data estimation technique (one step difference GMM) was employed to estimate the bank performance. The panel estimates show a positive and statistically insignificant relationship between capital levels and banks’ performance. It was also established that implicit costs negatively impacted on banks’ performance while bank size stimulated the performance of banks.

Keywords: Capital Levels, Banks’ Performance, Loan Provisions