Impact of credit risk and profitability on liquidity shocks of Namibian banks: an application of the structural VAR model

Abstract

The main purpose of this paper was to investigate the relationship between banks’ credit risk and profitability and liquidity shocks in Namibia for the period 2009 to 2018 using the SVAR model. In estimating the SVAR regression model, granger causality, impulse-response functions and forecast error variance decomposition were employed and evaluated. The sample consisted of Namibian commercial banks. By auditing liquidity data between 2009 and 2018, empirical results showed that liquidity risk is caused by a combination of structural shocks. The granger causality, impulse-response functions and forecast error variance decomposition documented that credit risk (non-performing loans) is key factor affecting liquidity conditions in Namibia in the medium to long run. In addition, the empirical results showed that quality earnings (ROA) have minimal impact on liquidity conditions in the short run. Reforming assets quality policies and earnings quality policies can be valuable policy tools to minimize liquidity shortages and avoid insolvent banks in Namibia.

Liquidity Management and Financial Performance of SACCOs in Bushenyi District

“…Numerous authors have concentrated their efforts on macro stress test exercises in this context (Otieno, Nyagol & Onditi, 2016;Song'e, 2015). However, there is a notable scarcity of literature addressing the frameworks implemented by central banks and financial regulators for monitoring liquidity risk at the level of individual banks (Kamuinjo, 2021). According to , some tools were put in place to monitor the liquidity of any financial institution and these include, operating cash flow management, Bank reconciliation statements and debtor's management to enable tracking cash movements and financial performance as well as liquidity risks.…”