Are Zimbabwean banks employing adequate risk management strategies? The case of ZB Bank

Abstract

A sound financial system is the pillar for the development of an economy. The lack of prudent risk management strategies has led to the collapse of banking institutions both locally and internationally. This study investigated the adequacy of the risk management strategies at ZB Bank. It was premised on the proposition that local banks are not employing adequate risk management strategies to prevent financial distress as well as to enhance shareholder value.

The research used both the phenomenological and positivism approaches in the form of a questionnaire and a semi-structured interview guide. Data was collected from 38 questionnaires and interviews were conducted with 5 key informants of the bank. Secondary information from the case study also added flesh to the research.

The major findings were that the bank’s strategies tend towards risk aversion and are not flexible to the dynamic environment in which it operates. Linked to that is an increasing credit risk profile weighing against the bank’s overall performance thereby failing to maximise shareholder value. There are discordant views on certain aspects of the risk management strategies among the different categories of staff indicating lack of effective communication in the organisation. Also there is lack of depth in expertise in some key risk generating departments such as Credit Services and Consumer Banking.

The recommendations are that there should be a paradigm shift on the part of top management in as far as their risk aversion is concerned. Instead, a carrot approach that stimulates a balance between risk and reward should be adopted. The bank also needs to invigorate their credit risk strategies through a sectorial analysis of the current bad book and isolating high risk sectors. There is need for continuous studying by the bank of the environment in order to quickly identify possible adverse developments. Further research is recommended on the adequacy of the risk management strategies in local insurance firms.