Corporate governance and performance of the banking sector: A case of Zimbabwe

The beginning of the 21^st century was characterised by the rise and fall of many banking institutions in Zimbabwe. These banking institutions faced serious challenges that ranged from chronic liquidity problems, deep-rooted risk management deficiencies and poor corporate governance practices. According to the Central bank, the financial sector was replete with poor corporate governance structures, characterised by improperly constituted boards of directors, poor board oversight, inexperienced management, and undue influence or dominance by a few shareholders.

According to the desk research conducted by the writers, some banking institutions unethically maintained two sets of financial records; one set for regulatory convenience at licensing, and on an ongoing basis another set reflecting the correct profile of the institution. This constituted fraudulent activities and violated the principles of good corporate governance.

In response to this malfunctioning in some banks and poor corporate governance practice in 2004, the Reserve Bank of Zimbabwe (RBZ) issued a Corporate Governance Guideline No. 012004/BSD which was meant to act as a yardstick in financial and banking sector. This was not to be a panacea to all corporate governance problems in Zimbabwe but to act as a minimum requirement. However, despite this measure some banking institutions continued to violet these corporate governance principles. In pursuit of its core mandate of maintaining financial stability, the Reserve Bank has a statutory obligation to take prompt and appropriate supervisory actions on those institutions that are deemed unsafe and unsound in order to estop contagion repercussions in the financial sector.

This led to the cancellation and suspension of banking licenses for banks such as ReNaissance, Barbican, Royal Bank, Time bank, Trust bank and Genesis to mention but a few.