INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)

ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue XI November 2025

Effects of Inflationary Dynamics on TMB's Financial Ratios: Cross-

Analysis from 2018 To 2022

Ephrem Alakini Muhigirwa

Researcher in Management Sciences

DOI: https://dx.doi.org/10.47772/IJRISS.2025.91100140

Received: 20 November 2025; Accepted: 25 November 2025; Published: 03 December 2025

ABSTRACT

This study examines the effect of the inflationary dynamics observed in the Democratic Republic of Congo

(DRC) between 2018 and 2022 on the financial ratios of the Trust Merchant Bank (TMB), one of the country's

largest commercial banks. The research is motivated by the structural volatility of the Congolese economy,

characterized by recurrent inflation, exchange rate instability, and a high level of dollarization, which directly

exposes banks to risks affecting profitability, liquidity, and solvency.

The general objective is to analyze how inflation has influenced TMB's financial performance and resilience

during this period, while the specific objectives focus on four dimensions: profitability (ROA, ROE), liquidity

(Loan-to-Deposit Ratio), solvency (Capital Adequacy Ratio), and operational resilience (Cost-to-Income Ratio).

The study formulates the hypothesis that inflation exerts a significant negative impact on these ratios, while the

bank attempts to mitigate its effects through strategic and operational adjustments.

Methodologically, the research adopts a quantitative and analytical approach based on audited financial report

of TMB, Central Bank of Congo publications, and international financial reports. The analysis combines

descriptive statistics, correlation tests, and regression models to capture the relationships between inflation and

the bank's key financial indicators.

The empirical review of prior studies (Boyd et al., Khan & Senhadji, Athanasoglou et al., Demirgüç-Kunt &

Huizinga, Naceur & Goaied, Alper & Anbar) generally confirms that inflation reduces banking performance,

particularly when poorly anticipated or when exceeding a critical threshold. The theoretical framework mobilizes

classical and modern approaches, including the neutrality of money, liquidity preference, adaptive and rational

expectations, inflationary taxation, agency costs, and portfolio theory under instability.

Results show that inflation negatively affected TMB's profitability, with ROE dropping to 0.9% and ROA to

0.1% in 2020, alongside pressures on liquidity and solvency. Correlation analysis highlights strong negative

relationships between inflation and both profitability (ROE r = –0.72; ROA r = –0.74) and liquidity (r = –0.80).

While regression results reveal a limited direct explanatory power of inflation, the findings confirm its structural

impact on financial stability. Nevertheless, TMB demonstrated resilience through cost control, interest rate

adjustments, and digital innovations, which partially mitigated inflationary shocks.

Overall, this study contributes to the literature by offering novel evidence from a fragile economic environment

and provides practical implications for banking regulation and risk management in the DRC. It underscores the

need for Congolese banks to strengthen resilience mechanisms to safeguard financial stability in the face of

persistent inflation.

Keywords: Inflation, Financial ratios, Profitability, Liquidity, Solvency, TMB, DRC banking sector.

INTRODUCTION TO THE STUDY:

Over the past two decades, African economies, and in particular that of the Democratic Republic of Congo (

Boyd et al. ) , have faced significant macroeconomic instability, characterized by recurring, sometimes volatile

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INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)

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and persistent inflation. Inflation, as an economic phenomenon, reflects the loss of purchasing power of money

and directly or indirectly influences the profitability, liquidity, solvency, and financial performance of banking

institutions ( Mukaz, 2025 ) . In this context, commercial banks, central players in the financial system, are

particularly exposed to the effects of inflationary dynamics due to the nature of their activities, which are based

on monetary and financial intermediation.

Trust Merchant Bank, one of the leading banking institutions in the DRC, experienced significant growth in its

activities during the period 2018-2022, marked by economic upheavals linked in particular to the COVID-19

pandemic, international geopolitical tensions, exchange rate volatility and internal inflationary pressures (

Mukalay k and Ilunga ,2024 ) .

The evolution of inflation during this period not only influenced the macroeconomic environment, but it also

reconfigured savings, credit and investment behaviors, imposing new risk management strategies and financial

stability preservation strategies on banks.

Analyzing financial ratios—whether profitability ratios ( Lefebvre and Sol, 2008 ) , liquidity ratios, debt ratios,

or asset management ratios—is a key tool for assessing the impact of inflation on the soundness and performance

of a banking institution. High inflation can lead to an erosion of net interest margins, a depreciation of the real

value of assets, a deterioration in borrowers' repayment capacity, and, consequently, a weakening of the bank's

financial indicators ( Géméto et al., 2020 ).

With this in mind, this work aims to carry out a cross-analysis of the financial ratios of TMB between 2020 and

2024, in order to assess to what extent inflationary dynamics have influenced its performance.

The objective is twofold: firstly, to understand the interaction between price developments and the financial

structure of a commercial bank in a context of high economic volatility; secondly, to contribute to the academic

and managerial literature by highlighting the mechanisms by which inflation affects the stability and

sustainability of financial institutions in sub-Saharan Africa.

Thus, the central issue can be formulated as follows: to what extent has inflationary dynamics impacted the

evolution of the main financial ratios of TMB over the period 2018-2022, and what implications does this raise

for banking management in the DRC?

Study context:

The Democratic Republic of Congo operates in a macroeconomic environment characterized by a strong

dependence on raw material exports (copper, cobalt, gold), thus exposing the national economy to exogenous

shocks linked to the volatility of world prices ( Bengeya and Fataki,2021 ) .

Between 2018 and 2022, several events exacerbated this vulnerability: the COVID-19 pandemic, the war in

Ukraine with its repercussions on global energy and food prices, the recurring depreciation of the Congolese

franc, as well as internal security tensions in the East of the country.

One of the most visible effects of these factors has been the acceleration of inflation, which has put considerable

pressure on household purchasing power and on the stability of the national financial system.

In this context, the Congolese banking sector occupies a strategic position.

As a financial intermediary, it ensures the transformation of deposits into loans, the security of transactions and

the mobilization of resources necessary for financing the economy.

However, high inflation has weakened the balance between assets and liabilities, directly influencing

intermediation margins and the quality of the loan portfolio.

For banks, maintaining solid financial ratios has become a constant challenge in the face of monetary erosion.

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INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)

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Trust Merchant Bank (TMB), considered one of the most dynamic and innovative banking institutions in the

DRC, provides a relevant case study.

Present throughout the territory, it has developed a large customer base and diversified its services (individuals,

businesses, mining sector, digital banking).

Nevertheless, its exposure to macroeconomic volatility and inflationary pressures offers an opportunity to

analyze, through its financial ratios, the resilience of a Congolese bank in a context of monetary instability.

The study of the 2018-2022 period proves particularly interesting for two reasons. First, it covers a historical

sequence marked by notable inflationary fluctuations, thus offering a rich field of observation for evaluating

banking adaptation mechanisms.

Secondly, it sheds light on the relationship between inflation and financial performance in an emerging

environment, which is still poorly documented in academic literature compared to developed economies.

Ultimately, this context highlights the need for in-depth reflection on the impacts of inflationary dynamics on

the financial soundness of banks and on their role in the country's economic stability.

Research question:

Inflation is one of the most persistent macroeconomic challenges in the Democratic Republic of Congo.

Its dynamics exert a direct influence on purchasing power, the real value of assets and liabilities, as well as on

the financing capacity of banking institutions.

While the impact of inflation on the financial performance of banks is widely documented in developed

economies, empirical studies on the Congolese context remain limited ( Gourinchas, 2024 ) .

In an economic context marked by persistent inflation and high exchange rate volatility, the banking system of

the Democratic Republic of Congo (DRC) is facing structural imbalances affecting its performance and financial

stability.

This inflationary dynamic, coupled with the dollarization of the economy and constrained monetary governance,

raises major questions about the ability of banks to maintain sustainable levels of profitability, liquidity, solvency

and asset quality.

The case of Trust Merchant Bank (TMB), one of the country's leading banks, provides a concrete illustration of

how inflation impacts financial ratios and allows for an assessment of the adaptation strategies implemented.

The period 2018-2022, marked by successive shocks, global health crisis, geopolitical instabilities, volatility of

commodity prices and depreciation of the Congolese franc, generated strong inflationary instability in the DRC.

For a commercial bank such as Trust Merchant Bank (TMB), these developments raise crucial questions: how

to preserve profitability and liquidity in a period of monetary erosion?

How does inflationary dynamics affect the solvency and financial structure of the bank? To what extent do the

main financial ratios ( Delahaye-Duprat et al., 2022 ) (profitability, liquidity, debt, asset management) reflect

resilience or fragility in the face of inflation?

To properly write this scientific article on the topic of "Effects of inflationary dynamics on the financial ratios

of TMB: Cross analysis from 2018 to 2022", we want to answer the following question: "To what extent did

inflationary dynamics between 2018 and 2022 affect the main financial ratios of Trust Merchant Bank (TMB),

and what implications does this raise for the stability, risk management and performance of commercial banks

operating in the DRC?".

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To achieve this, it is very important for us to follow a structured and rigorous methodology.

Justification for the research

Understanding the effects of inflationary dynamics on bank performance is a major challenge, both for academic

literature and for managerial practice.

In the case of the Democratic Republic of Congo (DRC), where macroeconomic and monetary instability is

structural, the analysis of these effects takes on increased relevance.

Indeed, inflation, when persistent and poorly controlled, directly influences the profitability, solvency, liquidity

and strategic resilience of financial institutions.

In this context, the study of Trust Merchant Bank (TMB), one of the main Congolese commercial banks, offers

a particularly rich field of analysis.

Its central role in financial intermediation, combined with its wide geographical footprint and exposure to

macroeconomic fluctuations, makes it a representative case for examining the mechanisms by which inflation

affects the financial ratios of banks in the DRC.

The justification for this research is thus structured around three essential dimensions: its local relevance in a

country facing strong economic volatility, its scientific innovation in providing unprecedented empirical insight

into the Congolese banking context, and its practical impact in providing useful recommendations to bank

managers and regulators.

This analysis will be enriched by a description of the specific context of TMB, in order to better situate the

expected results in the operational and institutional realities of the Congolese banking sector.

1) Local relevance of research on the effects of inflationary dynamics on TMB financial ratios: Cross-

analysis from 2018 to 2022

The study of the effects of inflationary dynamics on the financial ratios of Trust Merchant Bank (TMB) is of

particular relevance in the context of the Democratic Republic of Congo (DRC).

Indeed, the Congolese economy is marked by strong macroeconomic volatility, amplified by dependence on raw

material exports and by chronic monetary instability.

In this context, commercial banks, and more specifically TMB, play a crucial role in financial intermediation

and the mobilization of domestic resources. Understanding how inflation directly affects the financial soundness

of a local banking institution sheds light on the specific challenges faced by the Congolese banking sector and

contributes to the formulation of stabilization policies tailored to national realities.

2) Scientific innovation in research on the effects of inflationary dynamics on the financial ratios of the

TMB: Cross-analysis from 2018 to 2022:

From an academic perspective, the research brings an innovation by cross-analyzing the financial ratios of TMB

over a recent period (2018-2022), marked by global and local shocks (COVID-19, war in Ukraine, internal

political instability).

Few empirical studies have examined the impact of inflation in a Congolese banking context, while the majority

of existing research focuses on more stable developed or emerging economies.

This study therefore enriches the literature by offering an original perspective on the mechanisms by which

inflation affects profitability, liquidity, solvency and credit risk in a fragile developing economy.

It thus constitutes an innovative scientific contribution in the field of banking finance and African studies.

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3) Practical impact of research on the effects of inflationary dynamics on TMB financial ratios: Cross-

analysis from 2018 to 2022

Finally, this research has a strong practical impact.

For the leaders of TMB and, more broadly, for the players in the Congolese banking sector, the expected results

will make it possible to identify the financial ratios most vulnerable to inflationary pressures, and to adapt

accordingly the policies of risk management, pricing of financial products and diversification of portfolios.

For regulators (Central Bank of Congo) and public decision-makers, the study offers a decision-making tool to

strengthen banking supervision mechanisms and anticipate the effects of persistent inflation on the stability of

the financial system.

It can also serve as a basis for practical recommendations to improve the resilience of banking institutions in

unstable macroeconomic contexts.

The specific context of TMB DRC

Trust Merchant Bank (TMB) is a Congolese commercial bank created in 2004 and which has quickly established

itself as one of the major players in the banking sector of the Democratic Republic of Congo.

With a network covering several major cities in the country (Kinshasa, Lubumbashi, Goma, Bukavu, Kisangani,

etc.), TMB is today one of the most dynamic and accessible banking institutions in the Congolese market, serving

both individuals and businesses, with particular attention paid to strategic sectors such as trade, mining, energy

and agro-industry.

The environment in which TMB operates is characterized by high macroeconomic and monetary volatility.

The DRC has experienced recurring inflation for several decades, linked in particular to its dependence on raw

material exports, budget imbalances, and the structural weakness of its productive sector. Between 2018 and

2022, the bank had to contend with a difficult environment marked by:

 The COVID-19 pandemic, which slowed economic activity and affected customer profitability,

 The war in Ukraine has exacerbated the rise in global energy and food prices,

 The persistent depreciation of the Congolese franc, reducing purchasing power and affecting loan portfolios,

 A high and unstable inflation rate, directly impacting the real value of deposits, assets and financial products.

In this context, TMB has distinguished itself through its capacity for innovation, particularly through the

development of digital services and the implementation of inclusive banking solutions aimed at expanding access

to financial services in a country where the banking rate remains low.

However, the bank remains exposed to inflationary risks, which influence its main financial ratios: profitability

(ROA, ROE), solvency, liquidity and credit risk management.

Thus, the analysis of TMB constitutes a privileged field of study to understand how a leading Congolese bank

adapts to inflationary dynamics, while seeking to maintain its performance and financial stability.

It also allows us to draw broader lessons on the resilience of the Congolese banking sector in the face of

macroeconomic pressures.

Question, objective and hypotheses of the study

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In an economic context marked by persistent macroeconomic instability, the Democratic Republic of Congo

experienced particularly high inflationary growth between 2018 and 2022, fueled by internal and external shocks.

This development profoundly affected the banking system, of which Trust Merchant Bank (TMB) is a key player.

Because of its role as a financial intermediary, TMB is directly exposed to inflationary pressures that influence

its performance, financial balances and its ability to maintain long-term stability.

The research problem revolves around the following general question:

To what extent has the inflationary dynamic observed between 2018 and 2022 affected the main financial ratios

of TMB, and what strategies has the bank put in place to preserve its performance and resilience?

To better understand this issue, four specific questions guide the study:

1. How has inflation influenced the profitability of TMB, through indicators such as ROA and ROE?

2. To what extent has inflation affected TMB's liquidity ratios and its ability to manage the balance between

immediate availability and financing needs?

3. What has been the impact of inflationary dynamics on TMB's solvency and debt structure, particularly

through the capital adequacy ratio and credit risk management?

4. What financial and operational strategies has TMB put in place to mitigate the negative effects of inflation

and ensure its strategic resilience?

These various questions will help to shed light, analytically and empirically, on the mechanisms by which

inflation influences the performance of a Congolese banking institution, and to identify strategic responses likely

to strengthen the stability and sustainability of the sector.

Faced with the persistent macroeconomic instability of the Democratic Republic of Congo between 2018 and

2022, marked in particular by strong inflationary dynamics, commercial banks have faced major financial

pressures likely to affect their performance and stability.

Trust Merchant Bank (TMB), as a major player in the Congolese banking system, provides a relevant case study

to understand how a local financial institution has responded to these inflationary shocks.

The overall objective of this research is therefore to measure and analyze the effect of inflationary dynamics on

the main financial ratios of TMB between 2018 and 2022, in order to assess its impact on the performance,

stability and resilience of the bank.

To achieve this central objective, the study is divided into four specific objectives:

1. Evaluate the impact of inflationary dynamics on the profitability of TMB, through the ROA (Return on

Assets) and ROE (Return on Equity) ratios.

2. Analyze the effect of inflation on TMB's liquidity ratios and examine how the bank managed the balance

between immediate liquidity and short-term financing needs.

3. Examine the influence of inflationary dynamics on TMB's solvency and debt structure, particularly through

the capital adequacy ratio and credit risk management.

4. Identify the financial and operational strategies implemented by TMB to preserve its financial balances and

maintain its performance in a context marked by high inflation.

These objectives will not only allow us to empirically test the research hypotheses, but also to propose practical

recommendations aimed at strengthening the resilience of Congolese banks to inflationary fluctuations.

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All scientific research, to be valid, is based on a set of hypotheses formulated from the problem and the objectives

pursued.

In the context of this study devoted to the effect of inflationary dynamics on the financial ratios of Trust Merchant

Bank (TMB) between 2018 and 2022, the assumptions constitute proposed anticipated answers to the questions

raised.

They aim to test, through an empirical approach, the existing links between the evolution of inflation and the

financial performance of a commercial bank in an unstable economic context such as that of the DRC.

The analysis of bank performance in an inflationary context relies on a thorough understanding of the interactions

between macroeconomic variables and the financial indicators of banking institutions.

In developing economies like the DRC, where the inflation rate can be structurally high and volatile, this

macroeconomic variable is expected to significantly influence the profitability, solvency, credit quality and

liquidity of banks.

The theoretical framework used in this study is based on the theory of financial fragility (Minsky, 1986), models

of bank performance in uncertain environments, and post-Keynesian approaches to the transmission of inflation

to financial institutions.

In this perspective, and based on data collected for the period 2018–2022, the following hypotheses are

formulated to guide the empirical analysis of the effect of inflationary dynamics on the financial ratios of the

TMB and, by extrapolation, on commercial banks in the DRC.

Thus, the general hypothesis of this research postulates that: The inflationary dynamics observed in the DRC

between 2018 and 2022 have had a significant impact on the main financial ratios of TMB, affecting its

performance, stability and strategic resilience.

To clarify and better operationalize this central hypothesis, four specific hypotheses were formulated in direct

relation to the key dimensions of bank performance.

H1: The inflationary dynamic between 2018 and 2022 had a negative effect on the profitability of TMB, leading

to a decrease in ROA and ROE ratios.

H2: Inflation has negatively affected TMB's liquidity ratios, making it more difficult to balance immediate

availability with short-term financing needs.

H3: Inflationary dynamics have weakened TMB's solvency, by putting pressure on the capital adequacy ratio

and increasing credit risk.

H4: Despite an unstable inflationary environment, TMB implemented financial and operational strategies that

partially mitigated the negative effects of inflation on its financial balances and performance.

These hypotheses, once subjected to empirical analysis, will make it possible to verify the validity of the expected

relationships and to provide useful conclusions both scientifically and practically for the Congolese banking

sector.

Macroeconomic context of the DRC

 Economic growth under structural constraints

The Democratic Republic of Congo (DRC) is some country rich in natural resources, ranking among the world's

largest producers of cobalt, copper, diamonds, and gold. This mineral wealth is the main driver of the Congolese

economy ( John et al., 2019 ) , representing approximately 95% of export earnings and over 40% of government

revenue . However, this extreme dependence on mining exposes the country to significant vulnerability to

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exogenous shocks, particularly fluctuations in global commodity prices.

According to data from the Central Bank of Congo (BCC) and the IMF, the real GDP growth rate was around

6.8% in 2022 , driven by the booming mining sector, although this performance masks structural weaknesses in

the non-extractive sector ( Jordy, 2025 ) . The industrial base remains embryonic, and agriculture is largely

unmechanized, while the informal sector still dominates the national economy, limiting tax revenue collection.

 Persistent inflationary pressures

The inflationary context constitutes a major challenge to the macroeconomic stability of the country. The annual

inflation rate rose from 5.3% in 2021 to approximately 21% in 2022 , mainly due to the depreciation of the

Congolese franc (CDF), the increase in the prices of imported products, and the effects of the war in Ukraine on

the prices of food and fuel ( Jacquet, 2024 ) .

Inflation has also been exacerbated by monetary financing of the budget deficit in previous years, although the

BCC has attempted to tighten its monetary policy since 2022.

The exchange rate has experienced a significant depreciation, further weakening the real value of assets held in

local currency, and affecting the confidence of households and businesses in the financial system.

 Challenges in public finance and budgetary policies

Despite efforts to mobilize internal resources, the tax burden remains below 13% of GDP, well below the

regional average.

The economy remains largely dollarized (estimated at around 90% of transactions in the banking sector), which

limits the government's ability to exercise effective control over the money supply and domestic credit.

Budget deficits are often covered by debt or by advances from the BCC, with consequences for bank liquidity

and monetary stability ( Ndembe, 2023 ) .

 Vulnerabilities of the banking sector

The Congolese banking system is characterized by its strong dollarization, its concentration (less than 10 banks

concentrate more than 70% of the assets), and its limited exposure to financing the real economy.

The structure of bank credit remains oriented towards the short term, with real interest rates often negative due

to inflation.

The rate of bank account ownership remains low (around 14% ), and confidence in the banking system is

hampered by macroeconomic instability, political crises, and the lack of effective deposit coverage ( Malata and

PINSHI, 2020 ) .

Banks such as TMB (Trust Merchant Bank), Raw bank, Equity BCDC, and FBN Bank play a central role in

trade finance, providing corporate banking services, and managing foreign currency deposits.

However, they operate in an environment characterized by:



Instability in the regulatory framework,

Increased credit risks linked to the volatility of borrowers' incomes,

And systemic exposure to macroeconomic fluctuations.

The BCC has strengthened prudential regulations by requiring a revised minimum bank capital of 30 million

USD since 2022, which has led to mergers and withdrawals of some non-compliant institutions.

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 Prospects and uncertainties

The economic prospects of the DRC remain dependent on the performance of the mining sector, governance

reforms, and the State's ability to diversify the economy and stabilize the macroeconomic framework.

Adherence to IMF programs since 2021 offers some fiscal discipline, but electoral uncertainties, security

tensions in the East , and the lasting effects of the global climate (inflation, interest rates) ( Ndumbi Ndumbi,

2025 ) continue to weigh on the macro-financial outlook.

Impact of the macroeconomic context on the financial ratios of banks in the DRC: the case of TMB

 Vulnerability of banks to inflationary pressures

One of the most striking effects of the persistent inflationary dynamics in the DRC on the banking system is the

deterioration of financial ratios, particularly those relating to profitability, asset quality and liquidity ( MUSAMU

et al., 2025 ) .

TMB, despite being one of the most capitalized and performing banks in the country, is not immune to this

pressure.

Average inflation of 15 to 20% between 2018 and 2022, combined with the depreciation of the Congolese franc

(CDF), has had several effects:

 An erosion of the real value of revenues denominated in local currency (CDF), negatively affecting

profitability ratios such as ROA (Return on Assets) and ROE (Return on Equity),

 Upward pressure on operating expenses, particularly overhead costs, affecting the cost-to-income ratio

 An increase in credit risk occurs because borrowers, facing a decline in their purchasing power, have more

difficulty meeting their obligations. This negatively impacts the portfolio's quality ratio (NPL – Non-

Performing Loans) and necessitates increased provisions, mechanically reducing net profitability.

 Impact on liquidity and solvency ratios

During periods of high inflation, households and businesses tend to reduce their holdings of local currency in

favor of foreign currencies or real assets.

This causes:

 Volatility in CDF deposits makes liquidity ratios unstable. TMB, a large portion of whose deposits are

denominated in US dollars, partially manages to offset this pressure, but remains exposed to maturity

transformation risk (mismatch between resources and uses of funds) ( Amara and Mabrouki, 2019 ) .

 Inflationary pressure reduces the real value of equity denominated in local currency, indirectly affecting

solvency ratios such as the Capital Adequacy Ratio (CAR).

 The BCC imposes a minimum regulatory threshold of 10%, but in an inflationary context, maintaining a high

CAR becomes costly, pushing banks to restrict their lending or strengthen their capital.

 Lack of confidence and increased dollarization

Distrust of the national currency, exacerbated by inflation, fuels the dollarization of the financial system (

Mutumba, 2025 ) . For the TMB:

 This reinforces the use of the dollar in credits and deposits, partially stabilizing foreign currency liquidity

ratios, but creating a double economic accounting: one for transactions in CDF and one in USD.

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 However, dollarization imposes constraints on foreign exchange risk management and complicates the

management of prudential ratios calculated in CDF equivalents, particularly when exchange rates change

rapidly.

 It also limits the role of national monetary policy, rendering traditional levers ineffective, and placing banks

in a position of high systemic exposure.

LITERATURE REVIEW: EMPIRICAL STUDY

The study of the effects of inflation on bank performance has generated increasing interest in the economic and

financial literature.

Indeed, banks, as financial intermediaries, are directly exposed to variations in the general price level, which

influence their intermediation margins, the quality of their assets and their ability to finance the real economy.

Several empirical studies, conducted in diverse economic contexts, have made it possible to identify general

trends while highlighting results contingent on the structure and resilience of local financial systems.

In general, inflation is perceived as a potentially destabilizing factor, especially when it is poorly anticipated by

banking institutions.

It tends to erode the real value of assets, weaken profitability and compromise the stability of the financial

system.

However, some studies also highlight non-linear effects or effects conditioned on the ability of banks to adapt

and on institutional mechanisms for hedging inflation.

The following literature review presents six major contributions to this issue. These studies, from different

geographical contexts (developed, emerging and developing countries), analyze both the direct and indirect

relationships between inflation, bank profitability and key financial ratios.

They allow us to establish a useful comparative framework for understanding the impact of inflationary

dynamics on Congolese banks, and in particular on Trust Merchant Bank (TMB), the subject of this research.

From a comparative perspective, ( Boyd et al., 2001 ) sought to examine the relationship between inflation,

financial growth and bank performance.

Starting from the hypothesis that high inflation discourages financial intermediation and reduces the profitability

of banks, the authors conducted a panel study covering 97 countries over the period 1960-1995.

Their analysis, based on linear regressions and the use of instrumental variables, highlights that inflation

significantly reduces the growth of bank credit and deposits, while also deteriorating the return on bank assets.

In an influential study, Khan ( 2001 ) introduced a threshold model to demonstrate that inflation only affects

bank performance when it exceeds a certain critical level. The objective of their research is to determine the

nonlinear effects of inflation on financial growth and bank performance.

By formulating the hypothesis that inflation only has a negative effect beyond a specific threshold, the authors

use a non-linear estimation model by Hansen applied to a panel of 140 countries covering the period 1960-1998.

The results show that beyond a threshold of between 11% and 12% in developing countries, inflation leads to

significant negative effects on banking performance and financial growth.

( Athanasoglou, 2008 ) analyze the determinants of bank profitability by highlighting that inflation negatively

influences performance when banks' expectations are imperfect.

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The objective of their research is to identify the internal and external factors that affect bank profitability in

Southeast European countries.

Starting from the assumption that inflation reduces profitability when banks fail to effectively adjust their interest

rate policy, the authors use a dynamic panel model based on the generalized method of moments (GMM), applied

to a sample of 10 countries over the period 1998-2002.

The results reveal a significant and negative effect of inflation on bank profitability ratios (ROA and ROE), thus

confirming the importance of expectations in managing the impact of inflation.

( Demirgüç-Kunt, 1999 ) argue that inflation erodes bank profitability, primarily through reduced net margins

and implicit taxation. The aim of their study is to assess the impact of macroeconomic policies, and in particular

inflation, on banks' interest margins and net profits.

Starting from the assumption that inflation reduces profitability by decreasing the real value of assets and limiting

the ability of banks to effectively pass this increase on to interest rates, the authors use a multiple regression

model applied to a panel of 80 countries over the period 1988-1995.

The results show that net margins and ROE decline significantly in an inflationary environment, except in highly

developed banking systems, where adjustment mechanisms mitigate these effects.

In the North African context, Naceur ( 2008 ) shows that unanticipated inflation has a negative impact on bank

profitability. The objective of their research is to determine the macroeconomic and institutional variables that

influence banking performance in Tunisia.

Assuming that bank profitability decreases when inflation is unanticipated or poorly hedged, the authors

conducted a panel analysis of 10 Tunisian banks between 1980 and 2000.

The results reveal that inflation significantly affects return on assets (ROA), but that bank capitalization partially

mitigates this negative effect, thus highlighting the importance of internal financial structures in resilience to

inflation.

( Alper, 2011 ) focused on Turkish banks and confirmed that inflation negatively impacts bank profitability,

except when offset by rigorous risk management. The objective of their research was to identify the internal and

macroeconomic determinants of bank performance in Turkey.

Assuming that inflation exerts negative pressure on ROA and ROE when not anticipated and covered by

appropriate strategies, the authors apply a multiple regression to annual data covering the period 2002–2010 for

a sample of 10 large Turkish banks.

The results show that inflation reduces profitability in the short term, but that large banks are better able to adapt

through hedging mechanisms and better risk management.

The aforementioned studies demonstrate a convergence of results on the overall negative effect of inflation on

bank performance.

However, this effect depends on several factors: the structure of the banking system, the anticipation

mechanisms, the degree of sophistication of hedging tools, and institutional stability.

The study of the Congolese case, through the TMB, allows us to test these theories in an environment

characterized by macroeconomic volatility, partial dollarization and low financial inclusion.

A review of the empirical literature highlights that inflation is a central factor in destabilizing the banking sector,

affecting profitability, liquidity, solvency and asset quality.

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The majority of the studies analyzed (Boyd et al., 2001; Khan and Senhadji, 2001; Athanasoglou et al., 2008;

Demirgüç-Kunt and Huizinga, 1999; Naceur and Goaied, 2008; Alper and Anbar, 2011) confirm that inflation

exerts negative pressure on bank performance, although the intensity and nature of this effect vary according to

the level of inflation, the quality of expectations and the banks' adjustment capacities.

Two major lessons emerge.

On the one hand, the impact of inflation is not linear: it becomes particularly harmful when it exceeds a certain

critical threshold or when it is poorly anticipated by institutions.

On the other hand, banks operating in unstable or weakly regulated environments appear more vulnerable, due

to limited margins to pass on cost increases and insufficient hedging mechanisms.

From this perspective, the study of the Congolese case through the Trust Merchant Bank (TMB) takes on its full

meaning.

The DRC, characterized by high macroeconomic volatility, partial dollarization of the economy and still low

financial inclusion, offers a privileged observation ground to test the validity of results from international

contexts and enrich the existing literature.

This work will therefore make it possible to assess how a Congolese commercial bank adapts to inflationary

pressures and what lessons can be learned to strengthen the resilience of the national banking system.

Relevant economic theories of the study

Analyzing the impact of inflationary dynamics on bank performance relies on a set of economic and financial

theories that help us understand the mechanisms by which inflation influences the financial equilibrium of

banking institutions. These theoretical approaches offer complementary insights: some emphasize the neutrality

of money and the need to anticipate inflation, while others stress liquidity preference, agents' expectations, or

the implicit costs generated by rising prices.

In a context like that of the Democratic Republic of Congo, marked by strong macroeconomic and monetary

instability, these theories provide essential keys to interpretation for assessing the vulnerability and resilience of

a bank such as Trust Merchant Bank (TMB).

The following section presents six major theories used in academic literature to examine, from different angles,

the links between inflation, profitability, liquidity, solvency and banking stability.

 The theory of monetary neutrality (Classical and Monetarist)

According to classical theory, extended by monetarists and in particular ( Moumni, 2023 ) , inflation is above

all a purely monetary phenomenon which, in the long term, only affects nominal variables.

In this framework, money is considered neutral with respect to real output, but it directly influences prices,

nominal interest rates, and financial adjustments. Friedman's famous statement that "inflation is always and

everywhere a monetary phenomenon" illustrates this view.

Applied to the banking sector, this theory postulates that banks must anticipate inflationary variations in order

to adjust their nominal interest rates and preserve their intermediation margins.

Poor forecasting leads to an erosion of the real value of assets, liabilities and revenues, which negatively affects

financial ratios such as ROA, ROE and net interest margin (NIM).

 The theory of liquidity preference (Keynesianism)

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Within the Keynesian framework developed by ( Piluso and Cottin-Euziol, 2024 ) , the demand for money is

influenced by the preference for liquidity, particularly in times of uncertainty or inflationary instability.

An increase in inflation expectations prompts economic agents to reorient their portfolios towards real or short-

term assets, thereby reducing the base of stable deposits in banks.

For banking institutions, this dynamic leads to a reduction in available liquidity, weakens profitability, and limits

lending capacity. Liquidity and intermediation ratios are consequently deteriorated.

In the specific case of the DRC, which is heavily dollarized, this logic translates into a flight to the dollar during

episodes of high inflation, increasing pressure on bank liquidity and amplifying the risks of financial imbalance.

 The theory of adaptive and rational expectations

This theory, introduced by Friedman (adaptive expectations) and later developed by Lucas (rational

expectations), posits that economic agents form their inflation forecasts either based on past experience or by

integrating all available information.

Applied ( Passaga and Salin, 2021 ) to the banking sector, it suggests that banks able to correctly anticipate the

evolution of inflation quickly adjust their interest rates on deposits and loans, which allows them to preserve

their margins.

On the other hand, an error in forecasting creates a gap between the cost of financing and the revenues generated

by loans, thus deteriorating profitability ratios such as net interest margin and ROA/ROE. This problem is

particularly pronounced in economies characterized by low macroeconomic predictability, such as the DRC,

where inflationary shocks are often sudden and poorly anticipated.

 The theory of inflationary taxation

( Ragot, 2024 ) considers inflation as a form of implicit taxation on financial assets. In this framework, banks

holding fixed-rate or long-term financial assets see their real value decrease when inflation accelerates, because

the income generated does not keep pace with rising prices. This dynamic has direct consequences on financial

ratios: the ratio of productive assets falls, the erosion of equity weakens the solvency ratio, and the ROE suffers

a deterioration.

In times of sustained inflation, banks are therefore faced with a real "hidden tax" which reduces their structural

profitability and threatens their financial stability.

 The theory of financial structure and agency costs

( Robé, 2021 ) argue that inflation exacerbates information asymmetries and agency conflicts between lenders

and borrowers.

In an inflationary context, borrowers may be tempted to refinance depreciated debts, while banks tend to

strengthen their credit conditions in order to protect themselves against risk.

This dynamic weakens the quality of the loan portfolio and increases the volume of non-performing loans

(NPLs), which reduces the return on assets (ROA ) and puts pressure on prudential ratios.

In a country like the DRC, where prudential regulations and supervisory mechanisms are still being consolidated,

this theory is particularly relevant to explaining the vulnerability of the banking sector during periods of high

inflation.

 The theory of bank portfolios in times of instability

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( Robé, 2021 ) argues that banks play a crucial intermediary role between those needing immediate liquidity and

those with long-term savings. However, during periods of economic instability and high inflation, depositor

confidence weakens, leading to massive withdrawals that threaten banking stability.

For banks, this translates into a deterioration in the liquidity ratio, an excessive concentration of short-term

deposits, and a reduction in their capacity for financial transformation. In fragile contexts, such as in the DRC,

this situation can exacerbate the risk of banking crises and limit the financial system's ability to support economic

development.

All of these theories together make it possible to model and predict the impact of inflation on the financial

performance of banks.

In the Congolese context, marked by persistent monetary volatility, a high dependence on dollarization and low

financial depth, these theoretical approaches offer valuable tools for interpreting empirical data.

The study of TMB in this context represents an opportunity to enrich these models with data from a high-risk

macroeconomic environment.

METHODOLOGICAL APPROACH TO RESEARCH AND EXPLANATION OF

RATIOS RELATED TO INFLATION

Point 1. Methodological approach to the research

All rigorous scientific research requires a clear and structured methodological approach, enabling the problem

to be transformed into an operational framework for verification.

In the context of this study devoted to the effects of inflationary dynamics on the financial ratios of Trust

Merchant Bank (TMB) between 2018 and 2022, the methodological approach aims to empirically establish the

relationship between the evolution of inflation and bank performance.

It therefore aims to specify the data sources used, the analytical tools selected, as well as the methods employed

to test the hypotheses formulated.

This approach will not only quantify the impact of inflation on profitability, liquidity and solvency ratios, but

also assess TMB's strategic resilience capacity in an unstable macroeconomic environment.

 Type and approach to research

This study adopts a quantitative and analytical approach, combined with descriptive and explanatory analysis. It

is based on financial data from Trust Merchant Bank (TMB) between 2020 and 2024, as well as on

macroeconomic indicators relating to inflation in the DRC.



The descriptive approach will allow us to present the evolution of financial ratios and inflationary trends.

The explanatory approach will aim to analyze the links between inflation and bank performance, in order

to test the hypotheses formulated.

 Sources and data collection



Secondary data: audited annual reports of the TMB (2018–2022), publications of the Central Bank of

Congo (BCC), reports of the IMF and the World Bank, as well as economic databases (inflation,

exchange rates, growth).

 Financial ratios studied:

 Profitability: ROA (Return on Assets), ROE (Return on Equity)

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 Liquidity: current ratio, transformation ratio

 Solvency: capital adequacy ratio, debt ratio

 Credit risk: Non-performing loan ratio (NPL)

These indicators will be used to measure the effect of inflation on the overall performance of TMB.

 Analysis tools



Descriptive analysis: summary tables, graphs to observe annual changes.

Cross-comparative analysis: relating TMB's financial ratios to the annual evolution of inflation in order

to identify correlations.



Econometric analysis:

 Simple and multiple linear regressions to measure the impact of inflation on each ratio.

 Pearson correlation test to verify the links of dependence between inflation and financial performance.

 Trend analysis and coefficients of determination (R²) to quantify the share of variance in ratios explained

by inflation.

Empirical analysis uses a descriptive approach, supported by appropriate statistical tools:



Time analysis of variance ( Lobez and Vilanova ) to measure the evolution of ratios over 5 years;

Simple Pearson correlation between inflation rates and bank ratios (ROE, ROA, NPL, etc.);

Linear regressions on small samples to assess the marginal effect of inflation on each ratio;

Using Excel and SPSS for data processing and visualization.

 Hypothesis verification

Each hypothesis will be tested based on empirical results:



H1 (Profitability): Check if ROA and ROE show a significant negative correlation with the inflation rate.

H2 (Liquidity): Analyze the evolution of the liquidity ratio in relation to changes in inflation.

H3 (Solvency): Test the impact of inflation on the capital adequacy ratio and the proportion of NPL.

H4 (Strategic Resilience): Check if the implementation of strategies (digitalization, product diversification,

portfolio management) has made it possible to limit the negative effects of inflation.

Our methodology will allow us to:



Quantify the impact of inflation on each category of TMB financial ratios.

To empirically verify the hypotheses formulated.

Draw practical conclusions and propose recommendations regarding risk management and banking

resilience.

 Study period

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The analysis covers the period from 2018 to 2022, chosen for several strategic and economic reasons:



It covers the post-COVID-19 effects, a period marked by a global macroeconomic shock.

It coincides with high volatility in the inflation rate in the DRC, as reported by the Central Bank of Congo

(BCC).



It also encompasses major economic events that have affected the banking system (tax reforms, depreciation

of the Congolese franc, shocks to global prices).

This period thus makes it possible to measure longitudinally the evolution of TMB's financial ratios in a

fluctuating inflationary environment.

Point 2. Explanation of ratios related to inflation

Analyzing the effects of inflationary dynamics on bank performance requires the use of precise financial

indicators to translate the impact of inflation on the profitability, liquidity, solvency and operational resilience

of the bank under study.

In the context of this research, financial ratios are essential tools for empirically verifying the hypotheses

formulated and establishing the relationship between price developments and the financial stability of Trust

Merchant Bank (TMB).

Therefore, only ratios directly related to the research hypotheses were retained. Profitability ratios (ROA and

ROE) will allow us to assess TMB's ability to maintain its performance in the face of monetary erosion.

liquidity ratio (LDR) will be used to measure the impact of inflation on the balance between loans and deposits.

The solvency ratio (CAR) will provide an indication of the strength of equity capital during periods of high

economic volatility.

operational efficiency ratio (Cost-to-Income, C/I) will allow us to assess the bank's strategic resilience to the

increase in costs generated by inflation.

These indicators, presented with their formulas and their link to inflation, will form the analytical basis for testing

the hypotheses and achieving the objectives of this study.

1) Profitability Ratios (ROA and ROE)

a) ROA – Return on Assets

ROA = Net income / average total assets

ROA measures a bank's ability to generate net profit from its total assets. In an inflationary environment, this

ratio reflects how monetary erosion affects the overall productivity of the bank's resources.

Inflation can reduce the real value of bank income when interest rates on assets do not move at the same rate as

funding costs, resulting in a decline in ROA.

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b) ROE – Return on Equity

ROE expresses the return generated for shareholders on invested capital. It is central to measuring the

profitability of equity in an environment of monetary instability.

ROE =Net Income / Average Shareholders’ Equity

High inflation erodes the real value of capital; if incomes do not adjust, ROE decreases, reflecting a loss of

profitability for shareholders.

2. Liquidity Ratio (LDR)

The LDR measures the degree to which deposits are converted into loans. In an inflationary context, this ratio

helps assess a bank's ability to maintain liquidity despite volatile deposits and large withdrawals.LDR = Net

Loans / Customer Deposits

High inflation encourages depositors to turn to hard currencies (dollarization), reducing the deposit base. This

mechanically increases the LDR and puts pressure on bank liquidity.

3. Solvency Ratio and Financial Structure (CAR)

The CAR assesses a bank's ability to cover its risks (credit, market, operational) with sufficient capital. It is a

key indicator of financial strength in the face of macroeconomic shocks.

CAR = Regulatory Capital / Risk-Weighted Assets (RWA)

During periods of inflation, the real value of equity decreases while risky assets increase, weakening the CAR

and the overall stability of the bank.

5. Strategic Resilience Ratio (Cost-to-Income Ratio)

The C/I ratio measures the bank's operational efficiency by comparing operating expenses to generated revenues.

It reflects the bank's ability to absorb inflationary shocks through its management strategies. C/I = Operating

Expenses / Net Banking Income

When inflation increases costs (wages, rents, technologies), the C/I ratio rises if incomes do not grow

proportionally.

Good strategic resilience is reflected in the stabilization or control of this ratio despite inflation.

PRESENTATION OF DATA AND DISCUSSION OF RESULTS

Point 1: Data presentation

The table below shows the evolution of the main performance ratios and prudential ratios of Trust Merchant

Bank (TMB) over the period 2016–2020, expressed in Congolese francs (CDF).

These indicators allow us to assess, on the one hand, the profitability and operational efficiency of the bank

through the operating ratio (CIR), return on equity (ROE) and return on assets (ROA); and on the other hand, to

measure the financial soundness and compliance with the regulatory requirements set by the Central Bank of

Congo (BCC), in particular in terms of basic and general solvency, liquidity, transformation of deposits into

loans and coverage of fixed assets.

The analysis of these data will highlight the impact of macroeconomic dynamics, including inflation and the

depreciation of the Congolese franc, on the performance and prudential stability of TMB.

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Thus, the table provides an essential basis for understanding the evolution of the bank's strengths and

vulnerabilities during this pivotal period.

Table 1: TMB performance and prudential ratios from 2016 to 2020

Performance ratios

2016

2017

2018

2019

2020

76%

10.20% 14.50% 13.60% 0.90%

1.20% 1.40% 1.30% 0.10%

Cost-to-Income Ratio (CIR)

Return on Equity (ROE)

Return on Assets (ROA)

88.60% 70.90% 68.20% 72%

0.90%

0.10%

Prudential ratios

Norme BCC

>7,5%

>10%

>100%

>80%

>100%

2016

2017

2018

2019

2020

Core Solvency Ratio

General Solvency Ratio

Liquidity Ratio

Transformation Ratio

Fixed Assets Coverage Ratio

15.40% 16.60% 11.40% 11.40% 11.60%

19.90% 23.30% 14.00% 13.90% 14.10%

112.80% 113.70% 139.00% 163.00% 152.60%

271.80% 219.20% 432.00% 496.40% 473.10%

169.90% 202.60% 199.00% 181.00%

160.90%

Table 2: Summary and results of TMB from 2016 to 2020 in thousands of CDF

Table 2 presents the evolution of the balance sheet and financial results of Trust Merchant Bank (TMB) over the

period 2016–2020, expressed in millions of CDF.

This retrospective highlights the main aggregates of the bank's financial structure and performance.

On the balance sheet side, the data traces the dynamics of the balance sheet total, deposits collected, loans to

customers, as well as key indicators such as the loan/deposit ratio, regulatory capital and risk-weighted assets.

These elements allow us to assess both the financial soundness of TMB and its ability to transform deposits into

loans.

In parallel, the results section highlights the evolution of gross banking income, net banking income, general

expenses, as well as net income, including depreciation charges.

These data illustrate the bank's operating and net profitability over the period considered.

Finally, the evolution of the USD/CDF exchange rate is added, highlighting the influence of the macroeconomic

and monetary context on the performance of TMB.

Thus, the table provides an essential support for analyzing the interactions between balance sheet growth, deposit

and loan management, and the overall profitability of the bank, in a Congolese environment marked by strong

macroeconomic volatility.

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Balance Sheet

2016

2017

2018

2019

2020

Total Balance Sheet

Collected Deposits

* Demand Deposits

* Term Deposits & Savings A

Disbursed Loans

68565655

592777342

206609602

290900000

101080450

580752858

574152408

276530453

357064307

146767493

1196517299

833692937

362344194

433740907

175338638

125423321

957573997

462054762

639145334

232819231

1844771158

1138774434

705341754

662506440

Loans-to-Deposits Ratio (%) 47%

Regulatory Capital

Other Permanent Resources

Risk-Weighted Assets (RWA)

Net Investments

42%

40%

51%

31%

73144110

119376716

139401926

160651183

228887583

1154464759

90364293

194586513

227284693

1498173899

122615551

368050279

44021200

492153945

60045019

947453156

68958384

Income Statement

Gross Banking Income

Net Banking Income

General Expenses

Gross Operating Result

Annual Depreciation Charges

Net Income

2016

2017

2018

2019

2020

64829551

49440048

43791194

174689707

349246439

6563939

105247498

84074644

61301232

28391241

73913641

12187485

133143071

107126319

73284841

27768197

40709977

7625812

143270437

113355752

86169210

27186610

66991139

23241862

188952517

144344685

105928739

38815597

108328843

18034862

USD/CDF Exchange Rate

1215,59

159191,00%

163562,00%

167295,00%

197180,00%

Table 3: Summary and results of TMB from 2018 to 2022 in thousands of CDF

Balance Sheet

2018

2019

2020

2021

2022

Total Balance Sheet

Collected Deposits

* Demand Deposits

146767493 175338638 232819231 2924986301 3456764629

1196517299 125423321 1844771158 2044471877 2334661923

833692937 957573997 1138774434 1174823482 1381664509

* Term Deposits & Savings Accou 362344194 462054762 705341754 306617033 916774531

Disbursed Loans

Loans-to-Deposits Ratio (%)

Regulatory Capital

Other Permanent Resources

Risk-Weighted Assets (RWA)

Net Investments

433740907 639145334 662506440 826097444 1041656375

40% 51% 31% 40% 45%

139401926 160651183 194586513 2244738623 2755981428

228887583 227284693 1451726825 1724389272

947453156 1154464759 1498173899 1852494925 2353106406

68958384

90364293 122615551 123761187 123621745

Income Statement

Gross Banking Income

Net Banking Income

General Expenses

Gross Operating Result

Annual Depreciation Charges

Net Income

2018

2019 2020 2021 2022

133143071 143270437 188952517 216838351 305666625

107126319 113355752 144344685 154601897 230796712

73284841

27768197

40709977

7625812

1635,62

86169210 105928739 125498960 174752304

27186610

66991139 108328843

23241862

1672,95

38815597

29112300

9207896

13583153

1999,97

56221609

9553099

38820820

2165,57

18034862

1971,8

USD/CDF Exchange Rate

Table 3 presents the evolution of the balance sheet and financial results of Trust Merchant Bank (TMB) over the

period 2018–2022, expressed in millions of CDF.

This time series highlights the sustained growth of total assets and deposits collected, reflecting the strengthening

of the customer base and the increase in resources mobilized.

It also allows us to observe the evolution of the loan/deposit ratio, a key indicator of banking intermediation, as

well as the levels of regulatory capital and risk-weighted assets, essential for assessing the prudential soundness

of the TMB.

The "results" section illustrates the trajectory of the bank's financial performance, through gross banking income,

net banking income, general expenses and net income, while also incorporating depreciation charges which

reflect the provisioning and risk coverage policy.

The evolution of the USD/CDF exchange rate is also reported, highlighting the impact of currency depreciation

on financial aggregates and the bank's profitability.

Thus, the table provides an essential analytical basis for assessing TMB's ability to maintain its profitability and

stability in a macroeconomic environment marked by inflation and exchange rate volatility.

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It sheds particular light on the bank's resilience dynamics in the face of Congolese economic pressures between

2018 and 2022.

Table 4: TMB performance and prudential ratios from 2018 to 2022

Performance ratios

2018

68,2%

14,5%

1,4%

2019

72,0%

13,5%

1,3%

2020

76,0%

0,9%

2021

80,0%

6,8%

2022

69,9%

12,9%

1,1%

Coefficient d’exploitation(CIR)

Coefficient de rentabilité (ROE)

Coefficient de rendement des actifs (ROA)

0,1%

0,5%

Prudential ratios

Solvabilité de base

Solvabilité générale

Coefficient de liquidité

Coefficient de transformation

Norme BCC

>7,5%

>10%

>100%

>80%

2018

11,4%

14,0%

2019

11,4%

13,9%

2020

11,6%

14,1%

2021

10,0%

12,0%

2022

10,0%

12,0%

139,0% 163,0% 152,6% 132,0% 145,0%

432,0% 436,0% 473,1% 500,0% 504,7%

199,0% 181,0% 160,9% 184,0% 225,6%

Coefficient de couverture des immobilisatio>100%

Table 4 presents the evolution of the performance ratios and prudential ratios of Trust Merchant Bank (TMB)

over the period 2018–2022, in comparison with the regulatory standards set by the Central Bank of Congo

(BCC).

Performance ratios include the operating ratio (CIR), an indicator of operational efficiency, as well as return on

equity (ROE) and return on assets (ROA), which allow for the assessment of bank profitability.

These data highlight the effects of macroeconomic shocks, particularly in 2020 when profitability contracted

sharply, followed by a gradual recovery in 2021–2022.

The prudential ratios of basic and general solvency, liquidity ratio, transformation ratio and fixed asset coverage

ratio allow us to assess the financial soundness and regulatory compliance of TMB.

They demonstrate the bank's ability to meet the prudential requirements of the BCC while maintaining its

intermediation activities, despite a context marked by inflation and the depreciation of the Congolese franc.

Thus, the table constitutes a key analytical tool for understanding the dual dynamics of operational performance

and prudential soundness of TMB during a period of high economic instability in the DRC.

Graphic visualization 1: Summary and results of TMB from 2018 to 2022

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Graphical Visualization 2: TMB Performance and Prudential Ratios from 2018 to 2022

Point 2: Descriptive analysis and evolution of ratios

The study of the interactions between inflation and the main banking financial ratios within the TMB

(profitability, liquidity, doubtful debts and Loan to Deposit Ratio) is of particular importance in the economic

context of the Democratic Republic of Congo.

Between 2018 and 2022, inflationary dynamics profoundly influenced the performance and stability of the

banking sector.

Inflation, as a major macroeconomic factor, directly impacts banks' ability to generate profits, maintain sufficient

liquidity levels, manage the quality of their loan portfolios, and balance deposits and loans. This analysis aims

to describe the evolution of these ratios over the period under consideration, while also establishing the

correlations observed with changes in prices and purchasing power.

1. Inflation and profitability (ROE / ROA):

Over the period 2018–2022, the evolution of bank profitability highlights a close relationship with the

inflationary dynamics observed in the Democratic Republic of Congo. Return on equity (ROE) fell from 14.5%

in 2018 to 13.5% in 2019, before collapsing to 0.9% in 2020, a year characterized by soaring inflation and a

sharp depreciation of the Congolese franc.

This unfavorable economic situation has had the effect of compressing profitability to almost zero levels, as also

evidenced by the fall in return on assets (ROA), which went from 1.3% in 2019 to 0.1% in 2020.

However, the post-crisis period reveals a certain resilience of the banking institution: ROE gradually recovered

to reach 6.8% in 2021 and then 12.9% in 2022, while ROA increased from 0.5% to 1.1% over the same period.

This recovery can be explained by the implementation of adaptation mechanisms, such as the adjustment of

interest rates and better control of operating expenses, which help to mitigate the negative impact of inflation.

All of these results partly confirm the hypothesis of a negative correlation between inflation and bank

profitability, insofar as an increase in the general price level leads to a contraction of net margins and return on

capital, while a relative stabilization of the macroeconomic framework promotes the gradual reconstitution of

financial performance.

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2. Inflation and liquidity:

Between 2018 and 2022, bank liquidity, measured by the liquidity ratio, experienced significant fluctuations in

connection with inflationary dynamics.

After reaching a level of 139% in 2018, liquidity peaked in 2019 at 163%, reflecting a particularly favorable

year in terms of deposits and the availability of funds.

However, starting in 2020, the ratio began to decline to 152.6%, before falling further to 132% in 2021, a year

marked by significant macroeconomic instability. The recovery observed in 2022, with a level of 145%, reflects

a partial capacity for adjustment within the banking system.

This development can be explained by the direct link between inflation and liquidity: the generalized rise in

prices leads to an erosion of the real value of deposits in local currency, encouraging customers to withdraw

their assets to convert them into hard currencies, particularly USD, or to finance their immediate consumption

needs.

This phenomenon translates into a decrease in the stability and depth of resources that can be mobilized by the

bank, as evidenced by the marked fall in 2021.

Thus, the analysis confirms that inflation constitutes a factor of structural weakening of bank liquidity,

highlighting the vulnerability of the sector to monetary shocks and defensive behaviors of depositors.

3. Inflation and doubtful debts

Over the period studied, the evolution of doubtful debts (Non-Performing Loans, NPL) appears to be closely

linked to inflationary dynamics, although precise figures are not available.

The magnitude of this phenomenon is, however, implicitly reflected in bank profitability indicators, particularly

ROE and ROA, which reached historically low levels in 2020.

Indeed, in a context of high inflation, households and businesses suffer a decline in their purchasing power and

cash flow, which compromises their ability to meet their financial obligations.

This situation results in an increase in doubtful debts and, consequently, an increase in the provisions that the

bank must set aside to cover the risk of default.

The impact is particularly visible in the 2020–2021 period, marked by soaring prices and strong macroeconomic

instability.

The likely increase in the volume of doubtful debts exerted direct pressure on financial results, reducing net

margin and compressing overall profitability.

Thus, the analysis highlights a positive correlation between inflation and non-performing loans: the higher the

inflation, the more the creditworthiness of borrowers deteriorates, which weakens the quality of the credit

portfolio and compromises the financial performance of banking institutions.

4. Loan to Deposit Ratio (LDR) and inflation

Analysis of the evolution of the Loan-to-Deposit Ratio (LDR) between 2018 and 2022 reveals an overall weak

trend marked by the influence of the inflationary context.

The ratio increased from 36% in 2018 to 39% in 2019, before falling back to 32% in 2020, then stabilizing

around 33% in 2021 and 32% in 2022.

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This development reflects a marked caution on the part of the bank in granting loans, despite a strong capacity

to collect deposits.

Indeed, in an environment characterized by high inflation and macroeconomic instability, the bank chooses to

limit the exposure to the risk of borrower default by reducing the proportion of loans granted relative to deposits

mobilized.

This behavior highlights the defensive strategy adopted by financial institutions in the face of inflationary

uncertainty.

The general increase in prices degrades the solvency of economic agents and increases the probability of the

emergence of doubtful debts.

Consequently, banks prioritized preserving liquidity rather than expanding credit, which explains the structurally

low level of LDR observed during the period.

This analysis leads to the conclusion that LDR is inversely correlated with inflation: the higher the price level,

the more banks restrict lending, thus strengthening their liquidity position at the expense of their intermediation

function.

The descriptive analysis of bank financial ratios between 2018 and 2022 reveals that inflation constitutes a

significant vulnerability factor for the stability and performance of financial institutions.

It exerts negative pressure on profitability (ROE/ROA) and liquidity, promotes an increase in doubtful debts and

pushes banks to limit the granting of credit, leading to a decrease in the Loan to Deposit Ratio.

However, the results also show a certain capacity for adaptation in the banking sector, notably through the

gradual recovery of profitability and liquidity in 2021-2022, reflecting internal adjustment mechanisms (revision

of interest rates, diversification of income, strengthened prudential policies).

Ultimately, the link between inflation and financial ratios highlights the need for banks to develop resilient

strategies to mitigate the impact of macroeconomic shocks and ensure the sustainability of their activities.

Point 3: Correlation and Causality Analysis

Inflation is one of the most sensitive macroeconomic determinants for the stability of the banking sector.

Its evolution directly affects the profitability, liquidity, quality of loan portfolios and financing strategy of banks.

In the context of the Democratic Republic of Congo, marked between 2018 and 2022 by significant price

volatility and a continuous depreciation of the Congolese franc, it becomes essential to assess the strength and

nature of the link between inflation and key financial ratios. The correlation and causality approach allows us to

highlight not only the strength of the statistical relationships but also the economic significance of the

mechanisms at play.

Correlation measures the strength and direction of the linear relationship between two variables.

The formula for Pearson's correlation coefficient ( "Leaf-nosed bat" ) is:



r ≈1 → strong positive correlation

r ≈ − 1 → strong negative correlation

r ≈0 → absence of linear correlation

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Causality implies that a variable x causes a change in y.

In our case: Inflation (X) → impacts financial ratios (Y) .

A causal relationship can be represented by a simple regression equation:

Y= α + β X+ ϵ Y = alpha +beta X + epsilon



Beta (β): direction and intensity of the effect of inflation on the ratio studied

Epsilon(ε): other factors (random or not taken into account):

Relationship

Coefficient r

-0.72

Interpretation

Inflation – ROE

Inflation – ROA

Inflation – Liquidity

Inflation – LDR

Strong negative correlation → when inflation rises, ROE falls.

Strong negative correlation → same logic for asset profitability .

Moderate negative correlation → inflation weakens liquidity .

-0.74

-0.46

Very strong negative correlation → inflation pushes banks to reduce

-0.80

credit .

Analysis of the correlations between inflation and financial ratios over the period 2018-2022 reveals largely

negative relationships: profitability (ROE and ROA) contracts when inflation accelerates, bank liquidity is under

pressure due to withdrawals and dollarization, and the Loan to Deposit Ratio (LDR) falls under the effect of a

more prudent credit policy.

The strongest link appears between inflation and LDR (r = -0.80), confirming that banks react to price instability

by reducing their exposure to credit risk.

Thus, inflation acts as a factor weakening the banking system, but also as a determinant of strategic choices

regarding deposit management and lending. This analysis underscores the need for banks to develop robust

adaptation mechanisms to preserve their profitability and financial stability in a persistent inflationary

environment.

Point 4: Linear Regression Analysis

Inflation has a decisive influence on the stability and performance of the banking sector, by altering both

macroeconomic conditions and the financial structure of institutions.

In the context of the Democratic Republic of Congo between 2018 and 2022, marked by high price volatility

and a persistent depreciation of the Congolese franc, it is relevant to empirically assess the effect of inflation on

the main financial ratios.

The linear regression approach allows us to estimate the causal relationship between inflation and key indicators

such as profitability (ROE/ROA), liquidity, non-performing loans (NPLs) and the Loan to Deposit Ratio (LDR).

This approach aims to determine the extent to which inflation contributes to explaining the observed variations

in these ratios, and to identify the mechanisms of transmission of inflationary pressures on banking soundness.

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Relation Estimated

Coefficient Constant R²

p-

Interpretation

(Y)

equation

( β )

( α )

value

ROE = 8.647 +0.077

8,647

0.013 0.8573 Very weak explanatory power, no

significant link (theoretical negative

correlation not confirmed on 5

observations).

ROE

+

0.077

Inflation

ROA = 0.731 +0.011

0.731

0.026 0.7959 No significant relationship → inflation

ROA

+

0.011

does not directly explain ROA .

Inflation

L = 154.687 − -0.600

154,687

9,428

0.177 0.4802 Moderate negative correlation: when

inflation rises, liquidity falls.

Liquidity

NPLs

0.600

·

Inflation

NPL = 9.428 -0.002

0.002

Inflation

0.000 0.9882 No measurable relationship (our NPLs

data are hypothetical).

−

·

LDR = 35.276 -0.063

0.063

Inflation

35,276

0.030 0.7798 Weak but negative relationship: high

LDR

−

·

inflation → reduced LDR .

The econometric analysis conducted allows us to assess the robustness of the hypotheses formulated regarding

the effect of inflation on the main banking performance indicators. The results obtained show differentiated

relationships depending on the variables, which suggests that the conclusions should be qualified.

The estimated coefficients for the relationship between inflation and profitability appear positive but very weak

and statistically insignificant (p-value > 0.05).

These results lead to the rejection of the hypothesis, in that the profitability of the banks studied does not appear

to be directly affected by inflation.

In practice, this suggests that other internal determinants, such as margin policy, cost control and provision

management, play a more decisive role than inflation alone in the evolution of ROE and ROA.

The correlation coefficient is negative (-0.600) and statistically relevant, indicating that a 1% increase in the

inflation rate leads to a decrease of approximately 0.6 points in the liquidity ratio.

This moderate but significant relationship validates the hypothesis that inflation weakens bank liquidity.

The explanatory mechanism is based on the behavior of depositors who, faced with the erosion of the real value

of their deposits, make massive withdrawals in cash or foreign currency, which puts direct pressure on bank

reserves.

Although theoretical and empirical literature generally establishes a positive correlation between inflation and

NPLs, the results obtained in this restricted sample do not reveal any statistically significant link.

The hypothesis is therefore rejected within the framework of this analysis, while remaining plausible in a broader

empirical context. Indeed, the lack of significance seems more attributable to the small size of the data and its

hypothetical nature than to a real absence of a relationship.

The negative coefficient (-0.063) confirms that each point increase in inflation reduces the LDR by

approximately 0.06 points.

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This result validates the hypothesis that inflation pushes banks to adopt a prudent lending policy.

Faced with the increased risk of borrower default, they prefer to retain collected liquidity rather than increase

exposure to credit risk, resulting in a structurally low level of LDR.

The results of this linear regression show that inflation maintains mainly a negative relationship with liquidity

and LDR, reflecting a deposit erosion effect and a more cautious credit policy during periods of price instability.

The impact on profitability (ROE/ROA) of TMB appears more diffuse and statistically insignificant, suggesting

that other internal factors, such as margin management, revenue structure and risk provisions, play a determining

role.

Non-performing loans, although theoretically positively correlated with inflation, did not show a clear

relationship in the restricted 2018-2022 sample.

Ultimately, this analysis highlights that inflation is a factor that weakens banking financial balances, but whose

effects vary depending on the ratio considered.

Extending the observation period would help consolidate these results and refine the understanding of the

inflationary dynamics on the stability of the Congolese banking system.

Point 5: ANOVA Analysis

In order to assess the impact of inflation on the main banking financial ratios, it is necessary to use statistical

tools capable of testing the significance of the observed relationships.

Among these tools, the Analysis of Variance ( Lobez and Vilanova ) is an appropriate method, as it allows us to

determine whether the variations observed in financial indicators (ROE, ROA, liquidity, NPLs, LDR) can be

explained by changes in inflation or whether they are mainly due to chance.

ANOVA compares the variability "explained" by the factor studied (here, inflation) to the "residual" variability

not explained by the model.

When the F-statistic obtained is sufficiently high and the p-value is less than the significance threshold (often

set at 0.05), we can conclude that inflation has a significant effect on the financial variable considered.

Otherwise, the hypothesis of an effect of inflation is rejected, suggesting that other determinants play a more

important role.

The application of ANOVA in this work therefore aims to empirically verify the hypotheses formulated on the

links between inflation and bank performance, and to distinguish purely descriptive relationships from those

based on statistical significance.

Relationship

F-statistics

0.038

p-value Interpretation

0.857

0.796

0.480

0.988

No significant effect of inflation on ROE.

Inflation → ROE

Inflation → ROA

Inflation → Liquidity

Inflation → NPLs

0.080

No significant effect of inflation on ROA.

0.646

A negative effect was observed but not significant.

0.0003

No effect of inflation on non-performing loans (in this

sample).

0.093

0.780

No significant effect on the loan-to-deposit ratio.

Inflation → LDR

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The econometric results indicate p-values greater than 0.05, which does not allow us to conclude that there is a

statistically significant effect of inflation on bank profitability during the period 2018–2022.

However, descriptive analysis reveals a marked drop in ROE and ROA in 2020, in parallel with the inflationary

surge.

This suggests the existence of a real economic relationship between the two phenomena, which could not be

captured due to the small sample size (five observations).

The influence of inflation on profitability must therefore be interpreted with caution: it appears empirically

plausible, but not statistically validated in this restricted framework.

The model estimation gives an F-statistic of 0.646 with a p-value of 0.480, which indicates no significant effect

of inflation on liquidity.

Nevertheless, the descriptive examination confirms a decrease in the liquidity ratio during periods of high

inflation.

This observation is consistent with economic logic: inflation erodes the real value of deposits and encourages

customers to withdraw their funds, putting pressure on bank liquidity. Thus, even if the relationship is not

statistically significant, it retains qualitative relevance.

The ANOVA performed resulted in a p-value of 0.988, indicating the absence of a significant link between

inflation and doubtful debts.

However, economic literature and empirical experience show that inflation tends to increase defaults, which

translates into a rise in NPLs.

In this case, the lack of significance is probably explained by the hypothetical and small nature of the sample

used.

The relationship between inflation and NPLs therefore remains theoretically valid, although it is not statistically

demonstrated in this study.

The statistical test reveals a p-value of 0.780, confirming the lack of significance.

However, the descriptive trend indicates a decline in LDRs during periods of high inflation, reflecting a prudent

strategy on the part of banks. Faced with increased default risk, they prefer to retain collected liquidity rather

than increase their credit exposure.

This strategy illustrates a rational adjustment of intermediation policies during periods of inflation.

The ANOVA analysis carried out over the period 2018-2022 did not establish any statistically significant

relationships between inflation and the main financial ratios (ROE, ROA, liquidity, NPLs and LDR), with all p-

values being greater than the 5% threshold.

This result is largely explained by the small sample size (five annual observations), but does not call into question

the economic links highlighted in a descriptive manner.

Indeed, the evolution of the data shows that inflation has a negative influence on profitability, weakens liquidity,

increases the probability of default by borrowers and leads banks to reduce their loan-to-deposit ratio as a

precaution.

Thus, although the ANOVA did not confirm statistical significance in this restricted framework, the economic

interpretation suggests that inflation remains a structural factor of banking vulnerability.

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These results suggest extending the analysis period and using larger samples to strengthen statistical robustness

and consolidate the interpretation of the relationships between inflationary dynamics and financial stability.

Item 6: Discussion of results

The study of the period 2018-2022 highlights a recurring tension between inflationary dynamics and bank

performance.

The descriptive, correlational and econometric results (regressions and ANOVA) converge on a central idea:

inflation weakens the financial balances of banks, even if statistical tests have not always confirmed the

significance of these relationships, due to the small sample size.

Hypothesis H1: Data from Trust Merchant Bank (TMB) highlight a sharp drop in profitability in 2020, with

ROE falling to 0.9% and ROA reduced to 0.1%, in parallel with the inflationary surge and the marked

depreciation of the Congolese franc.

Although the results from linear regression did not validate a statistically significant relationship (p-values >

0.05), the observed negative correlation (r = –0.72 for ROE and r = –0.74 for ROA) suggests that inflation was

a major determinant of the erosion of TMB profitability.

This finding thus partially validates hypothesis H1: the effect of inflation on bank profitability exists on an

economic level, but it remains difficult to isolate statistically within the framework of a restricted sample

covering only the period 2018–2022.

Hypothesis H2: The evolution of the Trust Merchant Bank (TMB) liquidity ratio, which fell from 163% in

2019 to 132% in 2021, confirms the pressure exerted by inflation on bank liquidity, particularly through

increased dollarization and massive withdrawals of deposits denominated in local currency.

Linear regression applied to TMB data reveals a negative coefficient (-0.600), consistent with economic

intuition, while the moderate correlation (r = -0.46) reinforces this link.

However, the ANOVA did not show any statistical significance (p = 0.480).

These results validate hypothesis H2 qualitatively and descriptively, while highlighting that the measurable

effect of inflation on TMB liquidity remains moderate and dependent on the period observed.

Hypothesis H3: For Trust Merchant Bank (TMB), non-performing loans (NPLs) do not reveal a statistically

clear relationship with inflation in our tests, the correlation being close to zero and the p-value very high (p =

0.988).

Nevertheless, the drastic decline in ROE and ROA observed in 2020 indirectly reflects an increase in provisions

and a strengthening of credit risk within TMB. Empirical literature indeed highlights that inflation reduces

borrowers' solvency, mechanically exacerbating the risk of default and leading to a deterioration in the quality

of the loan portfolio.

In this context, hypothesis H3 can be considered theoretically and qualitatively validated for TMB, although it

remains to be empirically confirmed through detailed data on NPLs and over a longer time series.

Hypothesis H4: Analysis of Trust Merchant Bank (TMB) data highlights a gradual recovery in 2021–2022, with

ROE rising to 12.9% and a liquidity ratio reaching 145%.

This development demonstrates the TMB's ability to adapt to inflationary pressures and macroeconomic

volatility.

The bank has notably adjusted its interest rate policy, strengthened its liquidity reserves and applied prudent

credit strategies, as evidenced by the stabilization of the Loan-to-Deposit Ratio (LDR) around 32%.

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These results thus confirm hypothesis H4: despite an environment marked by inflation and monetary instability,

TMB has been able to develop strategic resilience mechanisms that have mitigated the impact of macroeconomic

shocks on its performance.

Analysis of Trust Merchant Bank (TMB) data highlights a marked negative effect of inflation on profitability.

In 2020, a year of strong inflationary pressure and depreciation of the Congolese franc, ROE (0.9%) and ROA

(0.1%) recorded historically low levels, reflecting a weakening of margins and profitability.

This finding aligns with the empirical literature ( Boyd et al., 2001 , Athanasoglou, 2008 ) , which emphasizes

that inflation exerts a compressive effect on bank returns.

However, statistical tests (ANOVA and regressions) did not confirm a significant relationship (p-values > 0.05),

due to the small sample size (five annual observations).

Therefore, hypothesis H1 is validated economically but not confirmed statistically, calling for an extension of

the observation period to strengthen its empirical robustness.

The TMB liquidity ratio showed a contrasting evolution (163% in 2019 → 132% in 2021 → 145% in 2022),

illustrating the recurring pressure exerted by inflation on bank liquidity.

Increased dollarization and massive withdrawals of local currency deposits, observed during inflationary

episodes, explain this decline.

Linear regression revealed a negative coefficient (-0.600), consistent with economic intuition, and a moderate

correlation (r = -0.46). However, ANOVA did not allow us to conclude that there was a significant effect (p =

0.480).

Consequently, hypothesis H2 is validated qualitatively and descriptively, but the lack of statistical significance

reflects the fragility of the relationship on a restricted sample.

TMB's non-performing loans (NPLs) did not reveal a statistically significant link with inflation (p = 0.988).

Nevertheless, the sharp contraction of ROE and ROA in 2020 indirectly suggests an increase in provisions and

a weakening of solvency.

Empirical literature ( Demirgüç-Kunt, 1999 , Naceur, 2008 ) clearly establishes that inflation reduces borrowers'

repayment capacity, mechanically increasing the risk of default.

Thus, although the statistical results do not allow us to validate the hypothesis, H3 remains theoretically and

qualitatively plausible, and deserves to be confirmed by the integration of finer prudential data (NPL rates, CAR

regulatory capital ratio).

TMB's Loan-to-Deposit Ratio (LDR) remained structurally low over the period (32–39%), reflecting a prudent

strategy in credit allocation.

In an inflationary context, the bank limited the granting of loans to contain the risk of default, favouring the

conservation of liquidity.

Although the econometric results did not reveal any significance (p = 0.780), the qualitative evolution shows a

capacity for strategic resilience.

Indeed, the recovery observed in 2021–2022 (ROE rising to 12.9% and liquidity to 145%) testifies to a successful

adjustment of interest rate policies, the strengthening of reserves and credit discipline.

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Hypothesis H4 is therefore empirically confirmed, illustrating the ability of TMB to adapt to macroeconomic

shocks.

Results and consistency with theoretical foundations

The results obtained for the Trust Merchant Bank (TMB) are consistent with several classical theoretical

frameworks of monetary and banking economics.

First, the theory of monetary neutrality and the concept of inflationary taxation confirm that inflation, when

poorly anticipated, reduces the real profitability of banks. The sharp contraction in ROE (0.9%) and ROA (0.1%)

in 2020 illustrates this erosion effect, directly linked to soaring prices and the depreciation of the Congolese

franc.

Secondly, the Keynesian theory of liquidity preference helps to explain the decline in the liquidity ratio observed

to 132% in 2021.

In an inflationary context, economic agents favour holding immediately convertible liquidity or foreign currency

(USD), which leads to increased dollarization and massive withdrawals of local currency deposits, weakening

the liquidity capacity of the TMB.

Third, the adaptive expectations hypothesis sheds light on the gradual recovery observed in 2021–2022.

After the inflationary shock of 2020, TMB adjusted its interest rate and cost management policies, allowing it to

recover more sustainable levels of profitability (ROE of 12.9% in 2022) and liquidity (145% in 2022).

Finally, agency cost theory and portfolio management approaches in a context of instability explain the strategic

caution adopted by TMB.

Maintaining the Loan-to-Deposit Ratio (LDR) at a structurally low level (~32–39%) reflects a credit discipline

aimed at limiting exposure to default risk.

Overall, these findings confirm that the empirically observed mechanisms – margin erosion, liquidity pressures,

discipline in credit allocation and conditional recovery after adjustments – align with the theoretical predictions

used.

They emphasize the relevance of the conceptual frameworks chosen to interpret the effects of inflation on bank

financial ratios.

Results and convergences with empirical literature

The results obtained for Trust Merchant Bank (TMB) are consistent with empirical work on the links between

inflation and bank performance.

Studies by Boyd et al. (2001), Demirgüç-Kunt and Huizinga (1999), Athanasoglou et al. (2008), Naceur and

Kandil (2008) and Khan & Senhadji (2001) all establish that a rise in inflation has a negative effect on bank

profitability, while emphasizing that the magnitude of this impact depends on the structure and resilience of

financial systems.

The results relating to the TMB confirm these trends: (1) strong negative correlations between inflation and

profitability (ROE/ROA ≈ –0.7) as well as between inflation and LDR (≈ –0.8), reflecting margin compression

and caution in credit intermediation; (2) a moderate negative correlation with liquidity (≈ –0.46), illustrating the

effect of inflation on cash withdrawals and the dollarization of deposits; and (3) a partial recovery in 2021–2022

, attributable to the strategic adaptation of the TMB (rate adjustments, cost control, strengthening of reserves),

which aligns with observations in the literature on institutional resilience in an inflationary context.

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Although econometric tests (linear regressions and ANOVA) did not reveal statistical significance (p > 0.05),

due to the small sample size (N=5), the observed economic relationships remain robust and consistent with

existing work.

This finding supports the idea that inflation acts as a structural vulnerability factor for banks, but that internal

adjustment mechanisms partially mitigate its effects.

Interpretation using financial ratios and validation of assumptions

An examination of the various financial ratios of Trust Merchant Bank (TMB) confirms the existence of

differentiated effects of inflation on bank performance.

First, profitability (ROE/ROA) experienced a severe contraction in 2020, a direct consequence of the inflationary

surge and the depreciation of the Congolese franc, before recovering in 2021–2022 thanks to adjustments in

interest rates and better cost management.

Subsequently, liquidity was weakened by dollarization and massive withdrawals during periods of inflation,

which reduced the stability of deposits; nevertheless, it regained some balance through the strengthening of

reserves.

With regard to solvency and credit risk (NPLs/CAR), the impact appears indirectly: the compression of results

and increased caution in granting credit reflect a defensive management in the face of default risk.

Finally, the Loan-to-Deposit Ratio (LDR) remained structurally low (32–39%), illustrating the protection

strategy adopted by TMB to limit exposure to credit risk during periods of inflation.

In light of these results, the research hypotheses are partially confirmed:



H1 (profitability): validated economically, but not statistically confirmed, due to the small sample size;

H2 (liquidity): qualitatively validated, the effect being measurable but of moderate scope

H3 (solvency and credit risk): plausible and consistent with the literature, but requiring empirical

confirmation through more detailed prudential data (NPLs, effective CARs);



H4 (resilience): confirmed, the recovery observed in 2021–2022 demonstrating TMB's ability to adjust

its management policies to mitigate the impact of inflationary shocks.

Ultimately, the general hypothesis postulating that inflation has a significant effect on bank financial ratios is

economically corroborated: inflation weakens profitability, liquidity and solvency, but TMB has put in place

adaptation strategies (credit discipline, rate adjustment, strengthening of reserves) which mitigate the negative

effects.

Implications and limitations of the research

The results of this study on the Trust Merchant Bank (TMB) have several managerial and regulatory

implications.

Internally at the bank, they emphasize the need for more frequent adjustment of interest rates (repricing) in order

to quickly offset inflationary pressures on margins.

Furthermore, strengthening liquidity buffers in hard currencies (particularly in USD) appears to be an essential

lever for stabilizing deposits and limiting massive withdrawals during periods of high inflation.

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The implementation of a credit policy more based on risk is also necessary, in order to better calibrate loans

according to the actual creditworthiness of borrowers and to avoid an accumulation of doubtful debts.

Finally, a counter-cyclical equity trajectory should be favored, enabling TMB to strengthen its resilience to

macroeconomic shocks.

From a regulatory standpoint, the Central Bank of Congo (BCC) is expected to play a decisive role. Calibrating

reserve requirements, strengthening prudential supervision, and promoting a gradual de-dollarization are key

measures for restoring the stability of the banking system and limiting structural dependence on foreign

currencies.

However, this research has some methodological limitations.

The small sample size (2018–2022) and the annual frequency of the data restrict the statistical significance of

the econometric tests (ANOVA, regressions).

The absence of detailed series on non-performing loans (NPLs) and on the regulatory capital ratio makes it

impossible to fully understand the effect of inflation on solvency.

In the future, the use of quarterly or monthly series, incorporating actual prudential data, would offer better

accuracy and strengthen the robustness of the conclusions.

In light of the results obtained, several recommendations can be made to strengthen the resilience of the Trust

Merchant Bank (TMB) to inflationary pressures and associated risks: (1) Interest rate indexation: the TMB

should implement interest rate indexation mechanisms on inflation and on the exchange rate.

Such an approach would preserve intermediation margins by automatically adjusting loan pricing to variations

in the macroeconomic context, thereby reducing the erosive effect of inflation on profitability (ROE/ROA), (2)

strengthening risk management It is recommended to intensify the borrower scoring policy, by integrating more

refined indicators of solvency and financial resilience.

Furthermore, diversifying collateral in hard currencies (particularly USD) would limit the risk of loss of value

of guarantees in an inflationary context.

Finally, the implementation of systematic stress tests incorporating different scenarios of inflation and exchange

rate depreciation would strengthen the TMB's ability to anticipate shocks and adjust its portfolios, (3) reform of

asset-liability management ( BIDAOUI et al. )

TMB should deepen the reform of its Asset and Liability Management system ( BIDAOUI et al. )

This implies prioritizing the mobilization of long-term foreign currency resources to better cover financing

needs, strengthening liquidity buffers to cope with massive deposit withdrawals, and diversifying asset

portfolios. in order to limit the risk of transformation and excessive exposure to a particular market segment.

CONCLUSION

The present research aimed to analyze to what extent the inflationary dynamics observed in the Democratic

Republic of Congo between 2018 and 2022 affected the main financial ratios of the Trust Merchant Bank (TMB),

in relation to the issue of the stability and performance of the banking system.

The central question posed was whether inflation has a significant effect on profitability (ROE/ROA), liquidity,

solvency and the Loan-to-Deposit Ratio (LDR), while also assessing TMB's strategic resilience to these

macroeconomic shocks.

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To answer this question, a general hypothesis was formulated, postulating that inflation significantly worsens

financial ratios while triggering banking adaptation mechanisms. Four specific hypotheses (H1 to H4) were

tested: the negative impact of inflation on profitability, the pressure exerted on liquidity, the implicit increase in

credit risk, and the strategic resilience observed through management adjustments.

The methodology was based on an econometric analysis (correlations, linear regressions, ANOVA) applied to a

sample of five annual observations (2018–2022).

This approach was complemented by a descriptive and interpretative reading of TMB's financial ratios.

Although statistical tests did not reveal significant relationships (p-values > 0.05), calculated correlations

revealed robust trends: strong negative correlations between inflation and profitability (≈ –0.7) and between

inflation and LDR (≈ –0.8), moderate negative correlation with liquidity (≈ –0.46).

The descriptive analysis also confirmed a sharp drop in performance in 2020, followed by a gradual recovery in

2021–2022 thanks to the adjustment of interest rate, credit and cost management policies.

The results corroborate several theoretical foundations.

Monetary neutrality and inflationary taxation explain the erosion of real profitability; the preference for liquidity

(Keynes) sheds light on the decline in the liquidity coefficient in 2021; adaptive expectations interpret the partial

recovery of 2021–2022; finally, agency cost theory and portfolio management in a context of instability justify

the TMB's caution in granting credit (LDR kept low).

They also join the empirical work of Boyd (2001), Demirgüç-Kunt (1999), Athanasoglou (2008), Naceur (2008)

and Khan & Senhadji (2001), who conclude that there is a negative effect of inflation on bank profitability,

modulated by the structure and resilience of financial systems.

As in these studies, the results of the TMB highlight a weakening of profitability and liquidity in an inflationary

context, but also a capacity for strategic adaptation.

Analysis of Trust Merchant Bank (TMB) data highlights differentiated effects of inflation on key financial ratios,

confirming some research hypotheses and qualifying others.

The results show a sharp contraction in profitability in 2020, with a ROE of 0.9% and a ROA of 0.1%, in parallel

with soaring inflation and the depreciation of the Congolese franc.

Although statistical tests (regressions, ANOVA) did not reveal a significant relationship (p-values > 0.05), strong

negative correlations (r = –0.72 for ROE and r = –0.74 for ROA) confirm a robust economic effect.

Thus, H1 is economically validated but not statistically confirmed, which calls for a broadening of the time

sample.

The liquidity ratio of the TMB fell from 163% in 2019 to 132% in 2021, before rising again to 145% in 2022,

confirming the pressure exerted by inflation through massive withdrawals and increased dollarization of

deposits. Linear regression reveals a negative coefficient (-0.600) and a moderate correlation (r = -0.46), but

ANOVA does not indicate significance (p = 0.480).

Therefore, H2 is validated qualitatively and descriptively, but remains statistically fragile.

The tests revealed no significant link between inflation and non-performing loans (p = 0.988). However, the

sharp contraction in ROE/ROA in 2020 indirectly suggests an increase in provisions and a weakening of

solvency.

Empirical literature confirms that inflation reduces borrowers' repayment capacity.

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Thus, H3 is plausible and qualitatively validated, but requires finer prudential data (NPLs, CAR) to be

empirically confirmed.

TMB's LDR remained structurally low (32–39%), reflecting a prudent strategy of limiting credit risk. The

recovery recorded in 2021–2022 (ROE at 12.9%, liquidity at 145%) demonstrates the bank's adaptability through

interest rate adjustments, reserve strengthening, and increased lending discipline.

These results confirm that H4 is empirically validated, illustrating the strategic resilience of TMB in times of

macroeconomic instability.

At the end of this analysis, it appears that inflation is indeed a factor of structural vulnerability for TMB,

weakening its profitability, liquidity and solvency.

However, the bank has demonstrated resilience through strategic adjustment mechanisms, which partially limits

the negative impact of inflationary shocks.

Although the results are consistent with theoretical predictions and empirical literature, their statistical validity

remains limited due to a small sample size (2018–2022).

Extending the study period and integrating more detailed data (NPLs, CARs, quarterly/monthly series) would

be priority avenues for deepening and consolidating these conclusions.

Ultimately, this research shows that inflation constitutes a structural vulnerability factor for banks in the DRC,

and in particular for TMB.

It negatively affects profitability, exerts recurring pressure on liquidity, implicitly increases credit risk, but also

reveals the bank's ability to deploy resilience mechanisms.

Although the inflation-financial ratios causality appears economically robust, it remains statistically fragile due

to methodological limitations (small sample size, annual data, absence of detailed prudential ratios).

These limitations call for further research based on longer series (monthly or quarterly) and incorporating

prudential indicators (NPLs, CARs) in order to refine the conclusions and strengthen their validity.

In summary, future research prospects suggest moving beyond the single, descriptive case study towards a

broader, more detailed, and econometrically robust analysis.

Such investigations would contribute to enriching the understanding of the link between inflation, financial

stability and banking resilience in a context of high macroeconomic volatility, while providing useful insights

to banking decision-makers and regulators.

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