Assessing The Effectiveness of Portfolio Management on the Performance of Commercial Banks in Zambia: Evidence from Absa Bank in Lusaka

Abstract

The efficacy of portfolio management techniques in the banking industry is called into question by these tendencies. Even if banks like ABSA have implemented risk-based frameworks and diversified asset strategies, market volatility, regulatory requirements, and shifts in consumer borrowing patterns nevertheless have an impact on their financial performance. The degree to which portfolio management techniques have a direct impact on Zambia's commercial banks' financial performance is yet unknown, particularly in the case of major establishments like ABSA Bank. Existing studies in the Zambian context have focused mainly on credit risk, capital adequacy, or general financial performance, with limited attention to the combined role to examine in what way portfolio management practices influence the financial performance of commercial banks in Zambia, with specific evidence drawn from ABSA Bank in Lusaka. The specific objectives of the study were to assess the effectiveness of asset allocation practices on the financial performance of ABSA Bank in Lusaka to evaluate how the quality of the credit portfolio influences the financial performance of ABSA Bank in Lusaka, and to determine the impact of investment portfolio decisions on the financial performance of ABSA Bank in Lusaka. The researcher adopted a quantitative research design. The study employed random sampling techniques to mobilise the quantitative data. The study used a Convergent Parallel Design, which involves simultaneously collecting and analyzing quantitative and qualitative data before combining them for interpretation. The researcher compared quantitative financial performance data with qualitative portfolio management staff perspectives thanks to this design. The convergent design is suitable when the researcher wants to collect various but complementary types of data on the same phenomenon, according to Creswell and Plano Clark (2018). The research comprised of questionnaires. The questionnaires were used because they are the main means of collecting quantitative primary data. The questionnaires enabled quantitative data collected in a standardized manner, to ensure the data is consistency and coherent for the analysis. From the findings, hypothesis tests if asset allocation practices have a significant effect on the financial performance of ABSA Bank in Lusaka was analyzed using regression analysis. The dependent variable financial performance was regressed on predicting variables of effects of asset allocation practices at ABSA bank in Lusaka to test the hypothesis H1.   The analysis from the model summary and the ANOVA table predicted that financial performance, F (6,191) =56.35, p˂0.05) has a significant effect on asset allocation practices at ABSA Bank in Lusaka. These results clearly direct the positive effect of financial performance, R2=0.648 depicts that the model explains 64.8 % of the variance in the effects of asset allocation practices at ABSA Bank in Lusaka. The dependent variable financial performance was regressed on predicting variables of credit portfolio quality at ABSA bank in Lusaka to test the hypothesis H2.   The analysis from the model summary and the ANOVA table predicted that financial performance, F (6,191) =30.801, p˂0.05) has a significant effect on credit portfolio quality at ABSA Bank in Lusaka. These results clearly direct the positive effect of financial performance, R2=0.501depicts that the model explains 50.1 % of the variance in the effects of asset allocation practices at ABSA Bank in Lusaka. The analysis from the model summary and the ANOVA table predicted that financial performance, F (6,191) =10.058, p˂0.05) has a significant effect on investment portfolio decisions at ABSA Bank in Lusaka. These results clearly direct the positive effect of financial performance, R2=0.2471depicts that the model explains 24.7 % of the variance in the effects of investment portfolio decisions at ABSA Bank in Lusaka.