Economic theory states that in situations of few well established enterprises,competition and consumer welfare is usually affected. The reduction in competition among other things results into consumers facing poorer service, and higher prices of goods and services. A number of studies in the banking sector in the USA, Europe and lately in the Southern African Monetary Area have been carried out and most of the results indicate that in a highly concentrated banking industry i.e few well established commercial banks, there are negative effects on the efficiency of banks and pricing of retail banking products.The Zambian banking sector has been and remains oligopolistic. Before independence in 1964, two foreign commercial banks dominated the banking sector namely Standard Bank and Barclays Banks with the Grindlays Bank providing fringe competition. In 1965, the Zambia National Commercial Bank (ZANACO) was established and followed by the Non-Bank Financial Institutions such as the Post Office, the Zambia National Building Society (which was a merge of building societies), the Zambia National Provident Fund and the Zambia State Insurance Corporation (another merge of insurance companies). Years later more private banks entered the market. Despite the entry of local banks, the banking industry still remains uncompetitive. Most of the banks with the notable exception of ZANACO are predominantly urban-based. The foreign banks continue dominating in terms of market share, loans and advances, deposits and total assets. Such type of structure indicates that the banking industry in Zambia is concentrated. This structure does not favour the welfare of customers. As a result high banking costs are being borne by the depositors due to inadequate competition prevailing in the country.

Under this study “the Price-Concentration Relationship in the Commercial Bank Deposit Markets in Zambia”, we explore the level of bank concentration in the country and the relationship between bank concentration and the pricing of retail banking deposit rates (i.e prices). In our analysis we uses quarterly data spanning the period 1997 to 2007 from the Bank of Zambia annual reports and bulletins; Commercial Banks annual reports; data from various thesis kept by the University of Zambia library; the Central Statistics reports; data on commercial banks from the World Bank’s World Development indicators; and Ministry of Finance and National Planning economic reports.


In analysing the data collected under this study, the time series of co-integration and error correction modelling approaches have been used. Empirical results suggests that there exists a unique long-run or equilibrium relationship among consumer weighted deposit interest rates (i.e., prices) and concentration ratio, per capita income and deposits held by commercial banks. This relationship implies that Zambia’s highly concentrated banking markets are “bad” for depositors.