Risk management in financial institutions: The case of Zimbabwean commercial banks

Abstract

The purpose of this study is to explore the current risk management practices that are being followed and exercised by the banks, specifically, commercial banks in Zimbabwe. Primary and secondary data sources were used to serve the purpose. The study sought to investigate the risk management policies being put in place by commercial banks. The research reviewed both theoretical and empirical theories underpinning risk management. Various types of risks are discussed with more emphasis on credit, market and operational risks. The research combined both the qualitative and quantitative research approaches in order to take advantage of the strengths of the two approaches with a view to enhance reliability and validity of the findings. A survey was carried out using one systematic and structured questionnaire administered to management and staff of banks. This research utilized the survey design method since it allows for a collection of standardized information from a specific population. The questionnaire was used as a data collection instrument because of its applicability to the survey research design. The study concluded that risk management has significant effect on bank performance, and vice versa. In general, the findings for both secondary data and primary data analyses are substantiating each other. Primary data analysis supports and strengthens the findings of secondary data analysis. Results reveal a significant difference in the application of risk management aspects among the commercial banks. The study recommends that banks should develop and maintain credit approval authority structure and grant approval authority to qualified and experienced individuals. Furthermore banks should work with business groups and individuals in creating risk awareness within the banks‟ risk taking capacity. In addition, the banks are recommended to establish external credit rating agencies to obtain the true information of the clients and use modern credit evaluation techniques. Furthermore, the study recommends the development of data base management to manage portfolio data and setting an information technology system to enhance communication and obtaining accurate data in timely manner.