Assessing the Effects of Reserve Ratio on the Pricing of Loan Products in Banks: A Case Study of Absa Bank

This research aims to assess the effects of the reserve ratio on the pricing of loan products in banks, using ABSA Bank Zambia as a case study. The reserve ratio, a critical monetary policy tool used by the Bank of Zambia, plays a vital role in determining commercial banks’ liquidity levels, which directly influence the interest rates charged on loans. To examine this relationship. A quantitative research approach was adopted, with data collected through structured questionnaire comprising 20 participants, distributed to ABSA Bank staff. The responses were compiled in Microsoft Excel and analyzed using regression techniques in Stata to identify the statistical relationship between reserve ratio changes and loan pricing behavior. The findings revealed a strong link between reserve ratio adjustments and interest rate movements. Increases in the reserve ratio tend to reduce the bank’s capacity to lend, leading to higher loan interest rates. In contrast, decreases in the reserve ratio improve liquidity and enable the bank to offer more competitive and accessible loan products. Additionally, the study found that other macroeconomic factors such as inflation and exchange rate fluctuations also influence loan pricing decisions at ABSA. The study concludes that the reserve ratio is a significant determinant of loan pricing in Zambia’s banking sector and recommends coordinated efforts between policymakers and banks to ensure that monetary policy tools are implemented in a way that supports both financial stability and credit affordability.