BANKING AND FINANCE |
RESEACH PROPOSAL FOR|
MUDZENGERERE CARLOS TAKUDZWA M112277 PHEKE EVEREST M112336 MANYANGA COLLINS TATENDA M11222O MUTEMERA TINASHE M113009 MASIYEMVURA BRIGHTON M112985 | TOPIC|
AN INVESTIGATION INTO THE EFFECTIVENESS OF BANK RESTRUCTURING IN RESOLVING THE ZIMBABWEAN FINANCIAL CRISIS|
This study will begin by giving a brief outline of what bank restructuring and financial crisis is as it pertains to Zimbabwe. It goes further to give the back ground of the study where the beginning of the financial crisis and restructuring process will be highlighted. In addition, the hypothesis of the study, the scope of the study, the significance of the study as well as the limitations will be discussed in this chapter.
2.2 BACKGROUND OF THE STUDY
Financial crisis involves an economic condition which most companies in the sector are unable to meet falling scheduled obligations. It arises due to financial factors such as too much debt and insufficient capital thus leading to cash flow problems. A lot can be said about the Zimbabwean banking crisis. This crisis arose as a result of most bankers loosing focus in terms of the fundamentals of bank management due to various macroeconomic factors towards the end of 2003 as highlighted in the Monetary Policy Statement in interest rates as inflation rose above market rates and also exacerbated leading to real rates deterioration. The Zimbabwean dollar continued to depreciate after 2002 against major currencies as parallel market activities increased. Gross domestic product (GDP), which is also a major indicator of economic performance, plunged to levels below zero percent by December 2003. The market also characterised by the shortages in maturities in terms of treasury bills (TBs) which led to liquidity shortages on the monetary market as annual tax payments had also reached higher levels in comparison to previous years which eventually drove the scarce funds from the Money Market. Liquidity shortages resulted in most banks being unable to access funds from the Reserve Bank through the overnight accommodation. Liquidity shortage continued and putting great pressure on banks as they continued to pick expensive money in the interbank market. Due to such status, where inflation was galloping and industry was not viable, speculative asset financing took centre stage. Many banks thus started engaging in non- core banking activities in the bias to survive these economic hardships. These activities included speculative asset financing as well as imprudent provision of loans to board members and directors funded by short term borrowings from the public as an indicator of poor corporate governance. Several banks also locked their funds in real estate, stock and parallel foreign exchange markets as elaborated in the Reserve Bank of Zimbabwe Monetary Policy Statement (2004). The Reserve Bank of Zimbabwe put several banks under curatorship in terms of Section 53 of the Banking Act, Chapter 24:20, since most banks had failed to sustain themselves and had even failed to adhere to Reserve Bank of Zimbabwe`s advise on strategic alliances and diversification, highlighted in the Monetary Policy Statement (2003) in an effort to meet up with the various strategic measures that had been put in place to turn the economy around. The main reason why most banks were put under curatorship as pointed out in the RBZ`s monetary policy statement (2004) was to create a stable and reliable system that is run along the virtues of transparency, prudence, accountability and international best practices. The institutions that were put under curatorship were Century bank,...