A Study of the Factors Influencing Bank Loan Performance in Zambian Commercial Banks

This study investigates the relationship between macroeconomic indicators and the Non-Performing Loan (NPL) Ratio in Zambia over a two-decade period (2003–2022/23). The research was motivated by the persistent challenge of high NPLs in Zambia’s banking sector, which undermines financial stability, restricts credit availability, and stifles economic growth. In analyzing data from the Bank of Zambia’s Financial and Other Statistics Booklet and BOZ Annual Reports (2004–2023), the study assesses how key macroeconomic variables—including inflation, GDP growth, interest rates, and exchange rate volatility—influence loan performance. Semi-structured interviews with six banking experts further explore institutional and borrower-level factors contributing to NPLs. Descriptive statistics and regression analysis disclose that high inflation and exchange rate volatility significantly increase loan defaults, while lower lending rates enhance repayment capacity. Both economic contractions and rapid GDP growth periods correlate with elevated NPL ratios, which suggests that macroeconomic conditions alone cannot fully explain NPL dynamics. The study also identifies critical non-macroeconomic drivers, such as weak credit monitoring, corruption, and inadequate loan recovery mechanisms. The findings have important implications for policymakers and financial institutions. They highlight the need for a multi-pronged strategy combining macroeconomic stability, tighter regulatory oversight, and institutional reforms to curb NPLs. Recommendations include establishing dedicated loan recovery units, forming asset management corporations, and strengthening credit vetting through a national credit reference bureau. Ultimately, this study emphasizes that sustainable reductions in NPLs require sound economic policies and systemic improvements in governance, risk management, and legal enforcement to ensure long-term financial sector resilience in Zambia.