An Analysis of the Performance of Banks: A Comparative Study of Domestic and Foreign Banks in Zambia

Abstract

Foreign-owned banks in Zambia have a commanding share of the industry’s profitability, averaging 82.6% between 2016 and 2018, leaving only 17.4% of the industry’s profits for the local banks and thereby resulting in huge externalisation of the financial sector’s profits.The study aimed to provide a comparative analysis of foreign and domestic banks’ profitability in Zambia with regards to the debt component of their capital structure and the impact of leverage on the performance of banks in Zambia over a ten year period. The study used a sample of 10 Commercial banks in Zambia and used a descriptive research methodology and a mixed research approach. The annual reports and financial statements of ten different banks were reviewed to extract secondary data between 2010 and 2020. The study found that there is a statistically stark difference in the capital structures of foreign and local commercial banks, with foreign-owned banks being more adequately capitalized and relying less on wholesale funding (leverage) as compared to local banks. The study further found that leverage has a substantial impact on a bank’s financial performance.