Financial risk management and investment decision-making: A Comparative study of commercial banks and non-bank financial institutions in Zambia

Abstract

<jats:p>This study examined how financial risk management influences investment decision-making and institutional performance among commercial banks and non-bank financial institutions (NBFIs) in Zambia. The study was motivated by limited comparative evidence on whether the maturity of enterprise risk management (ERM) frameworks differs between banks and NBFIs and whether those differences affect investment discipline and performance outcomes. The study was anchored in Enterprise Risk Management theory, which emphasises a firm-wide approach aligned with strategy and governance. An explanatory sequential mixed-methods research design was adopted. The target population comprised 15 commercial banks and 250 non-bank financial institutions registered in Zambia, while the sample comprised risk management, investment, finance, compliance and portfolio-related professionals working in selected commercial banks and NBFIs, including pension, insurance, microfinance and asset-management institutions. A stratified sampling approach was used to secure comparable representation across commercial banks and NBFI subsectors, while purposive selection targeted respondents with direct knowledge of risk governance, risk reporting, investment analysis and portfolio monitoring. Quantitative data were collected through structured questionnaires from 422 valid respondents, consisting of 210 bank respondents and 212 NBFI respondents, and qualitative evidence was obtained from practitioner interviews and open-ended questionnaire responses. Quantitative data were analysed using descriptive statistics, independent-samples t-tests, analysis of variance, correlation and regression analysis, while qualitative evidence was analysed thematically. The findings showed that commercial banks had higher ERM maturity, broader risk-tool adoption, stronger risk-appetite alignment and stronger performance outcomes than NBFIs. ERM maturity significantly predicted investment decision quality, and both ERM maturity and investment decision quality significantly predicted performance outcomes. Regulation supported performance where institutions translated supervisory expectations into internal governance discipline. The study concludes that financial risk management should be treated as a strategic capability that strengthens investment discipline, resilience and sustainable performance rather than as a narrow compliance activity. The study recommends that NBFIs strengthen proportionate ERM frameworks, risk dashboards, stress testing, risk-appetite alignment and post-investment portfolio monitoring, while regulators should support capability-based supervision across banking and non-bank financial sectors.</jats:p>