Impact of credit risk (NPLs) and Capital on Liquidity Risk of Namibian Banks

Liquidity and credit risk are known to be key sources of default risk in banking institutions and bank capital is a buffer against financial risk. The purpose of this research is to study the effect of capital on liquidity risk as well as investigate the relationship between liquidity risk and credit risk in the form of NPLs in Namibian banks. The study uses bank specific data over the period of 2011-2021 from the four banking institutions in Namibia as well as economic data provided by Namibian Statistics Agency. The study was conducted by use of the Generalized Auto-Regressive Conditional Heteroskedasticity (GARCH) models which allowed us to identify reasons that were behind the shocks in liquidity in Namibia. To further identify changes in prohibitive linkages over the long term, the Dynamic Conditional Correlation Generalized Autoregressive Conditional Heteroskedasticity (DDC-GARCH) was employed. The empirical findings highlight the changes in the banking sector during the economic downturn experienced in the last 10 years. The finding also provide lessons for Africa as a whole and bring light to the suggestion that banking sectors in developing nations should strengthen their fiscal policies and make essential modifications to maintain bank profitability. Mathematics Subject Classification: 34A08, 65M06, 65N12, 35R11.