An evaluation of the efficiency of the banking sector in Zimbabwe

The study evaluates the cost and revenue efficiency of the Zimbabwean banking sector using the data envelopment analysis and Tobit regression model. Revenue and cost efficiency increased between 2009 and 2012 as a result of economic stability and growth registered in the economy. The trend in efficiency was negatively affected during 2013-2014 as a result of declining economic growth and price controls, which were imposed on the banking sector. The study established that private banks were more revenue and cost efficient compared to public banks. Domestic banks were relatively cost and revenue efficient compared to foreign banks supporting the home field advantage hypothesis. Commercial banks were cost and revenue efficient compared to building societies. The main drivers of both cost and revenue efficiency are cost income ratio, capital adequacy, macroeconomic growth and inflation. The results mean that banking sector efficiency is dependent on the decisions of the bank regulators and bank management. It is recommended that the government should improve the operating environment for banks and desist from interfering with operation of market forces. Competition among banks should be encouraged to improve the efficiency of the banking sector.Keywords: Cost and revenue efficiency, Data envelopment analysis, Tobit regression, Zimbabw

Evaluating Bank Cost Efficiency Using Stochastic Frontier Analysis

The study seeks to assess the cost efficiency of the commercial banks in Zimbabwe using the stochastic frontier analysis. The cost efficiency of the Zimbabwean banks is estimated using the trans-log stochastic frontier approach. The Stochastic Frontier Analysis methodology is among the host of methods that has been used to measure banking sector efficiency. The analysis of cost efficiency of commercial banks has important implications for the economy since an efficient banking system has potential to reduce interest rates which can lead to increased investment and growth for the economy. The cost of doing business in Zimbabwe is perceived to be high hence improved bank efficiency has the potential to reduce the cost of doing business. The average cost efficiency scores for the Zimbabwean banks over the study period show that the banking sector in Zimbabwe experiencing 17 percent inefficiency. The efficiency levels have been declining over the years reflecting increased resource wastage in the system. The study recommends that the banking institutions should continue to innovate so as to reduce their inefficiencies

Effect of Finite Larmor Radius on the Cosmic Ray Penetration into an Interplanetary Magnetic Flux Rope

We discuss a mechanism for cosmic ray penetration into an interplanetary magnetic flux rope, particularly the effect of the finite Larmor radius and magnetic field irregularities. First, we derive analytical solutions for cosmic ray behavior inside a magnetic flux rope, on the basis of the Newton-Lorentz equation of a particle, to investigate how cosmic rays penetrate magnetic flux ropes under an assumption of there being no scattering by small-scale magnetic field irregularities. Next, we perform a numerical simulation of a cosmic ray penetration into an interplanetary magnetic flux rope by adding small-scale magnetic field irregularities. This simulation shows that a cosmic ray density distribution is greatly different from that deduced from a guiding center approximation because of the effect of the finite Larmor radius and magnetic field irregularities for the case of a moderate to large Larmor radius compared to the flux rope radius.Comment: 17 pages, 14 figures, accepted for publication in The Astrophysical Journa

Determinants of Banking Sector Profitability in Zimbabwe

The study sought to establish the determinants of banking sector profitability in Zimbabwe during the period 2009-2014. The study specifically looked at the evolution and determinants of banking sector profitability after Zimbabwe adopted a multicurrency system. Employing the fixed effects panel regression models the study shows that banking sector profitability in Zimbabwe is driven by the quality of decisions made by bank management with regard to liquidity risk, credit risk, asset composition and management, expense management and capital size. The results implies that profitability of the Zimbabwean banking sector can be improved by increasing the quality of the assets, improving expense management, improving liquidity and capital levels. The study confirms that bank managers have a significant role in shaping the profitability of the sector. Keywords:  Banking Profitability, External Determinants, Internal Determinants, Fixed Effects, Generalized Methods of Moments JEL Classifications: C23; G21; L2

An application of Panzar-Rosse Approach in assessing banking sector competition in Zimbabwe

This paper assesses the level of competition in Zimbabwe’s banking sector using the Panzar-Rosse H-statistic. The H-Statistic has been assessed, using the total revenues regression equation, and applying the panel least square regression model with fixed effects. The H-statistics is estimated at 0.56, which result is confirmed, using bank random effects and the General methods of moments. The H-statics obtained from the two methods are 0.54 and 0.51 for the random effect and generalised methods of moments, respectively. The results confirm the presence of monopolistic competition. On an annual basis, the results show that the Zimbabwean banking sector is evolving towards perfect competition. There is need for the government to desist from tampering with market forces as this reduces the amount of competition. This study is important, as there are limited studies on the competition of the banking sector in dollarized economies. Dollarized economies are peculiar in that their characteristics differ from non-dollarized economies

Evaluating Market Power in the Zimbabwean Banking Sector

The study evaluates the nature of market structure, and the degree and determinants of market power in the Zimbabwean banking sector during the period 2009-2014. The study employs the Lerner Index approach method to assess the market power of banks. The Lerner Index approach assists in measuring the extent to which a bank has market power to set its price above marginal cost. The study results established that the banking sector operates under monopolistic competition, confirming that banks possess some market power in pricing their products. This is a result of the nature of products sold by the banking sector, which are differentiated but close substitutes. The study found that the market power of banks increased during the period and was derailed by the memorandum of association which was signed between banks and the central bank. The study established that market power is determined by capital adequacy, non-performing loans, liquidity risk, cost income ratio, economic growth, and regulatory interventions. The study recommends that the government should ensure that it puts in place measures that enhance economic growth and should desist from interfering with the operations of market forces

Domestic or Foreign Banks? Who Wields more Market Power?

The study distinguishes the market power between domestic and foreign banks in Zimbabwe using the Lerner Index. The study established that the banking sector is operating under monopolistic competition conditions. The result shows banks price their products above the marginal cost of production. Domestic banks have more market power as compared to foreign firms. The foreign banks serves the high end consumers whose risky profile is low while the other end of the market is served by the domestic banks who are very risky. This then translates to higher prices for the clients served by the domestic banks. Bank regulators should promote competition to improve the efficiency of domestic banks to reduce their market power. Keywords: Market Power, Lerner Index, Marginal Cost JEL Classifications:  D4, G21, L

Co-integration between Electricity Supply and Economic Growth in South Africa

This study probes the short and long run relationship between economic growth, electricity supply, trade openness, electricity prices, employment and capital in South Africa within a multivariate framework. The autoregressive distributed lag bound testing was employed to establish the long run relationship between these variables using data for the period between 1985 and 2014. Major findings of the study include that economic growth, electricity supply, trade openness, electricity prices, employment and capital are co-integrated. Overall, the paper suggests that efficient planning and increased investments in electricity supply industry infrastructure is of essence to solve the problem of electricity supply as this would force the sustainable economic growth in South Africa. Keywords: Electricity Supply, Economic Growth, South Africa JEL Classifications: O13, Q4

An Investigation into the Electricity Supply and Economic Growth Nexus for South Africa

A booming industrial sector helps to complement and sustain continued economic growth. On the other hand an efficient and steady supply of electricity is of paramount importance for the growth of an industrial sector of a country as it acts as catalyst for economic growth. The study sought to examine the causal relationship between electricity supply and economic growth in South Africa for the period 1990-2012. The study incorporated electricity power outages and employment to form a multivariate framework using a vector error correction model (VECM). The study established a unidirectional causality flowing from electricity supply to economic growth. The result implies that electricity supply boosts economic growth in South Africa. There is need for the policy makers to ensure they put in place measures that can improve the electricity supply in the country through a reduction in power outages for the industrial sector. Keywords: Electricity supply, Economic growth, Causality test, Nexus JEL Classifications: C22; O13; Q1