"The minimisation of the liquidation of viable banking institutions in Zimbabwe's banking sector".

Abstract

The Zimbabwe banking sector seems to have almost recovered from the banking crisis of 2003/2006, in a very difficult social, economic and political environment. More than 20 banking institutions were placed under liquidation during the crisis. The rapid rehabilitation can be attributed largely to the corrective measures under the Reserve Bank of Zimbabwe’s active monetary reforms from January 2004, competent top management teams and credible shareholders in most of the banking institutions. The researcher maintains, however, that it is of paramount importance for the banking sector to implement a second stage of bank restructuring characterised by a market-based system, the application of forward-looking criteria to the system of Regular Banking Restructuring, and, thirdly, effective corporate governance structures. It can be deduced that by the beginning of 2007 the pace of reform had diminished, reflecting the effects of the prevailing social, economic and political turbulence. In addition, other factors, namely, under-capitalisation, ineffective corporate governance structures, shortages of cash and foreign exchange and a dwindling economy, have continued to threaten the viability of a number of banks. In this situation the Reserve Bank of Zimbabwe, on behalf of the government, is urged to launch a second round of banking reforms. Two years after the banking crisis, fundamental questions still linger over whether future actions will be based on market mechanisms, or whether bank restructuring reforms will continue. Yet, based on its experience of having overcome the banking crisis, in the teeth of an annual rate of inflation of 231 million per cent (31 July 2008), immeasurably the highest in the world, Zimbabwe can contribute vital practical and up-to-date bank restructuring methodology ideas to countries such as United States, Europe and, indeed, the global financial market generally. The main objectives of this qualitative research project are as follows: o To establish the major causes of liquidation or collapse of banks during 2003/2006. o To determine how some banks survived, while others of similar size collapsed during the period of study. o To make a contribution to the field by providing practical and effective solutions, in order to minimize the effects of past collapses and forestall similar failures of viable institutions in the banking sector in the future. o To investigate how corporate governance principles and market-based, regular banking restructuring could be applied in practice, in order to minimize the liquidation of viable institutions. o To determine what measures ought to be taken regarding bank insolvencies in Zimbabwe. In this regard, Chapter One offers an introduction with historical background. Chapter Two presents a survey of relevant literature, focusing on corporate governance and bank restructuring, relating to theoretical, practical and methodological issues. The final part of the literature survey covers problems identified by the researcher. Chapter Three details the conducting of the field work, and the strategies and methods of data collection. The samples fall into three categories: first, banks that were placed under liquidation, second, banks that were restructured and third, banks that remained financially sound during the crisis. Chapter Four covers results of field research and qualitative analysis of data. In this chapter the researcher addresses all of the research questions set out in the beginning. Reports are presented with tables of numerical data, graphs or quotes from the interviews and other sources to enhance the discussion of results. Chapter Five covers interpretation and discussion of findings. Early data analysis is applied in order to make preliminary connections between different strands of information. Chapter Six presents the conclusion, with recommendations and notes on the contribution of the study to the field under discussion. Conclusions are naturally based on the findings of the research, and from these flow the recommendations. The emphasis here is on recommendations that are as practical and achievable as possible. Finally, a number of areas that, in the researcher’s opinion, call for further research are suggested, in order to expand the body of knowledge in general and to develop the search for further practical banking solutions in particular.