The History of the Banking Industry in Zimbabwe
It is important to analyse and evaluate the banking structure in Zimbabwe for us to appreciation how IT will really fit in. The Zimbabwe’s Banking sector is relatively sophisticated, consisting of the Reserve Bank of Zimbabwe, Discount Houses, Commercial Banks, Merchant Banks, Finance Houses, Building Societies and The Post Office Savings Bank. The development of the Zimbabwean banking sector can be analysed within three separate periods, which the banking industry went through different development phases.
PRIOR 1991 PERIOD
The financial system in Zimbabwe inherited a regulated environment and it has for years pursued segmented or specialised funding. For instance merchant banks were
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It was hoped that this free entry of new firms would lead to complete breakdown of the cartels and facilitate desegmanation. Financial reforms included among other things the removal of restrictions for new entrants, demise of financial institutions cartels, removal of impediments for competition between financial institutions and loosening of product segments. The main thrust of financial liberalisation in Zimbabwe is on loosening the restrictive laws that tended to stifle or limit the scope of activities that financial institutions could venture into.
Impact of Deregularisation
During this period the banking sector was hailed as the most successful industry in
Zimbabwe up to 2003. The collapse of United Merchant Bank in 1998 did not have much impact on the industry. The RBZ increased the capital adequacy requirement for banks to avoid further negative impact on the industry.
Increase in number of banks
Deregulation of the banking industry increased the number of banks in the industry.
Commercial Banks increased to 17
Merchant Banks increased to 6
Discount Houses increased to 9
Building Societies increased to 6
Some authorities argued that Zimbabwe was now over banked. This implies that the economy might end up having more banks than required for its services. This may lead to underutilisation of resources such as labour and capital assets. The running costs became higher and banks cannot survive by passing costs to customers.
In the document is also said that even when people have money in that bank people would go to the bank and go get their money since that bank was going to be a failed and it also said that after their failure the repressive effect on the spending of its clients. They couldn’t do anything to help the bank to crash even though they will all be crashed any day.
The Stock Market Crash played a major role in bank failures. After the crash, people were indifferent about the stability of banks, so they all began taking out their savings. Banks no longer had the currency to stay open. For those who did not take this
There are various categories of banking; these include retail banking, directly dealing with small businesses and persons. Commercial and Corporate banking which offers services to medium and large businesses (Koch & MacDonald 2010). Private banking, deals with individuals, offering them one on one service. The last category is investment banking. These help clients to raise capital and often invest in financial markets. Most global banking institutions provide all these services combined. With all these institutions in existence within the same localities and offering similar services, there is a need to regulate the industry so as to protect the consumer and provide fair working environment for all banks (Du & Girma, 2011).
Many people lost as much as ten times their initial investment, which shook consumer confidence. In an effort to cover their margins, people rushed the banks in masses, demanding their money. Soon, banks began to run out of cash and went bust.
One of the primary factors that can be attributed as to have led the recent financial crisis is the financial deregulation allowing financial institutions a lot of freedom in the way they operated. The manifestation of this was seen in the form of:
The political and economical issues spread beyond the government and to the community in Zimbabwe. For 15 years prior, the economy is Zimbabwe had been slowly fading but after the recent election the unemployment rate rose to eighty percent (“Govt” 1, 2). The number for jobless people increased to a massive number of nearly 200,000 making the eleventh year high up to 3.33 million (“Bankruptcies” 1, 2). This made it extremely challenging for families to afford things like education, health care, and even housing. As a result, this forced people to turn to crime and corruption just to try and make a living. While the citizens were turning to crime, the government was wasting all it’s money for personal needs. It was also discovered that the government had been paying more than 40,000 to what was referred to as “ghost workers” appearing on their payroll (“Govt” 1, 2). As a result of this, Zimbabwe was part of a huge fraud situation with the Nigerian Deposit Insurance. They were accounted for seventy-four cents for all fraud counts (“Our” 1). Soon after this scandal, Zimbabwe had no choice but to declare bankruptcy making the country record, 1082 bankruptcies as of 2008 (“Bankruptcies” 1, 2). After the fraud situation the government tried to cover up by creating an Anti-Corruption Commission (ACC). The government was interested in fixing
Bank Failures (Over 9,000 banks in the US and over 100,000 around the world failed as deposits were uninsured and people lost their savings. The surviving banks unsure of the economic situation and concerned for their own survival refused to
banks make in pursuit of profits. When the time came, the financial meltdown many banks
Extensive research has determined that the banking industry is in an unstable state. The industry’s profits have
In this essay I will be addressing the “Too Big To Fail” (TBTF) problem in the current banking system. I will be discussing the risks associated with this policy, and the real problems behind it. I will then examine some solutions that have been proposed to solve the “too big to fail” problem. The policy ‘too big to fail’ refers to the idea that a bank has become so large that its failure could cause a disastrous effect to the rest of the economy, and so the government will provide assistance, in the form of perhaps a bailout/oversee a merger, to prevent this from happening. This is to protect the creditors and allow the bank to continue operating. If a bank does fail then this could cause a domino effect throughout
There has been a debate for years on what caused the Financial Crisis in 2008 and if there was one main cause, or a series of unfortunate events that led to the crisis. The crisis began when the market was no longer funding many financial entities. The Federal Reserve then lowered the federal funds rate from 5.25% to almost zero percent in December 2008. The Federal Government realized that this was not enough and decided to bail out Bear Stearns, which inhibited JP Morgan Chase to buy Bear Stearns. Unfortunately Bear Stearns was not the only financial entity that needed saving, Lehman Brothers needed help as well. Lehman Brothers was twice the size of Bear Stearns and the government could not bail them out. Lehman Brothers declared bankruptcy on September 15, 2008. Lehman Brothers bankruptcy caused the market tensions to become disastrous. The Fed then had to bail out American International Group the day after Lehman Brothers failed (Poole, 2010). Some blame poor policy making and others blame the government. The main causes of the financial crisis are the deregulation of banks and bank corruption.
In the first section, we will look at the overview of the banking industry such as the strategic position, its structure, and information on major competitors. We will also look at the strategic developments at the industry level as well as overall competitive challenges. We analyzed the trends that impact on the business growth, innovation and risk management. We also examined the implications of some developments for business, regulatory
Since the adoption of the multi-currency regime, Zimbabwean financial institutions have increasingly been facing challenges associated with
Private banks, regardless of where they operate all over the world, also facing similar demands arise from the
The continuing deterioration in the financial health of the banks and increasing incidence of bank