An assessment of the factors determining public confidence and its impact on the financial performance and stability of banks in Zimbabwe

Abstract

The study sought to assess the factors determining public confidence and its impact on the performance and stability of banks in Zimbabwe. The objectives that guided this study were to determine the level of public confidence in Zimbabwe’s banking sector; to identify the factors that contribute to public confidence in Zimbabwe’s banking sector; to assess the strength and capability of measures used to enhance public confidence in Zimbabwe’s banking sector as well as to recommend ways in which public confidence in Zimbabwe’s banking sector can be enhanced. The study reviewed both theoretical and empirical literature underpinning public confidence and its impact on the performance and stability of banks. Empirical data were obtained through the administration of questionnaires distributed to 131 individuals who included 124 bank clients in 19 banks, four senior bank executives, and one senior executive each from the Deposit Protection Corporation (DPC), Reserve Bank of Zimbabwe (RBZ) and Bankers Association of Zimbabwe (BAZ). The data gathered was analysed through data display in the form of data tables and bar charts, whilst factor analysis, correlation tests and regression analysis were undertaken to establish whether there were relationships amongst the variables that assisted in testing the hypotheses that were proposed in this study. The study findings were that public confidence in the banking sector was low and it was affected by a number of factors that included inadequate bank regulation and supervision, inadequate deposit protection, availability of financial services and products and poor corporate governance and management practices. Furthermore, the effectiveness of DPC's efforts in ensuring public confidence in the banking sector were average whilst RBZ was ineffective in improving public confidence in the banking sector. The current corporate governance and management practices in the banking sector were unsatisfactory in promoting public confidence as well as contributing to favourable performance in the Zimbabwean banking sector. However, mobile banking and other similar innovative financial products and services have had a positive impact on public confidence in the banking sector. Therefore, the study concluded that the low public confidence significantly impacted the performance of banks in Zimbabwe. However, if the public confidence was enhanced the banking sector could achieve improved performance. The study recommended the restoration of the role of RBZ by capacitating its regulatory, supervisory and monitoring role in the financial sector, and strengthening of corporate governance in the banking sector through amending the relevant legislation, ethical conduct of directors and management and strict internal systems and controls. The Deposit Protection Corporation should review the compensation level upwards and undertake public awareness programmes. Banks should v promote the use of mobile financial services and technology in banking and promote financial inclusion and financial literacy.