A Study of Internal Factors Affecting Commercial Banks’ Provision of Bank Services in the New Digital Economy for Developing Countries: A Case Study ZANACO Bank of Zambia

The main objective of this study was to determine the specific internal factors that Affect the provision of banking services by the bank. This study was specific to Zambia National Commercial Bank (ZANACO). In studying the various factors, it was envisaged that the research would provide an understanding of the impact that specific factors identified would have on the overall provision of financial services by the financial institution. The period considered was 2008 to 2018. Multiple regressions were used to conduct the analysis, using SPSS program. The results of the study show that bank size has a negative and statistically significant effect on performance of banks. Capital adequacy is a critical bank specific factor that influences the level of bank profitability. It is an indicator of the level of capital required by the banks to enable them withstand risks such as credit, market and operational risks they are exposed to in order to absorb the potential loses and protect the bank's debtors (Ongore and Kusa Ongore and Kusa,.Int. J. Econ. Fin. Issues 3:237–252, 2013). The capital adequacy ratio of a bank therefore demonstrates the internal strength of the bank to support losses during crisis periods. The study undertaken shows that capital adequacy has a negative impact on performance of Zanaco, which is statistically significant contrary to expectations. The result suggests that a higher capital ratio leads to or predicts lower profitability, consistent with the findings of Frederic (2014), who found a negative impact of capital-assets ratio among banking sector over the period of his study. Further, there is a negative relationship between liquidity and profitability. There is need for a more risk averse approach by Zanaco in its efforts to raise its loan portfolio. This is because Non-Performing Loans (NPLs) levels contribute to the reduction of profitability. From the data reviewed, this maybe because of Zanaco experiencing large losses amounting from increasing rate of NPLs. Overall, banks as a rule do have large amount of liquidity owing to the large savings deposits that are pooled from individual public’s savings. However, the large savings base is also characterised by even fewer opportunities for investments of these funds. Many business that have borrowed from the banks have failed to repay their loans overtime, resulting in a reclassification of their accounts as bad credit following the Bank’s failure to fully recover the outstanding balances. The previously mentioned, the amount of bad debt that a bank holds on its books has a direct impact on the perceived performance of the bank. Further, the findings of the study on Zanaco show a correlation between income diversification and financial performance. Liquidity, operational cost efficiency, capital adequacy and asset quality of the Bank were found to have a negative effect on the financial performance of the commercial banks in Zambia.