Financial distress and corporate
governance in Zimbabwean banks
Purpose – The purpose of this paper is to investigate the relationship between corporate governance
failures and ﬁnancial distress in Zimbabwe’s banking sector.
Design/methodology/approach – The study uses the case study method. It discusses cases of banks
currently in ﬁnancial distress. Data collection was through desk research. The analysis is qualitative.
Judgemental sampling was used in selecting the eight abridged cases.
Findings – In all cases of pronounced ﬁnancial distress, either the chairman of the board or the chief
executive wields disproportionate power in the board. The disproportionate power emanates from major
shareholding. The overbearing executive overshadows other directors, executive and non-executive,
thus creating power imbalance in the board. The study shows that ﬁnancial institutions in Zimbabwe (as
cited in abridged cases) underestimated the competitive forces that resulted from ﬁrst, economic
deregulation and later economic decline coupled with political meltdown. In order to survive, banking
institutions signiﬁcantly shifted from their core business. In all cases the institutions ended up engaging
in ﬁnancial and accounting imprudence. The study also shows that an active role by regulatory
authorities directly contributes to observance of good corporate governance practices.
Originality/value – The value of the paper is in its contribution of knowledge in an area that is least
researched in Zimbabwe. The paper should be quite useful to academics in terms of understanding
developing country corporate governance issues. The paper is also valuable to business executives
especially those operating in economies under stress.
Keywords Zimbabwe, Banks, Corporate governance, Chief executives
Paper type Research paper
Zimbabwe’s ﬁnancial services sector has witnessed phenomenal growth since economic
deregulation in 1991. However, economic turbulences and political meltdown that have
hogged the country since year 2000 have created a new and challenging environment.
Between 1998 and 2003 banks were declaring super proﬁts at the close of each ﬁnancial
year. The super proﬁts were mainly attributable to non-core operations some of which were
to be declared illegal by monetary authorities at a later stage. The main form of illegitimate
transaction common among the banks was the foreign currency black market. A
consequence of deregulation has been a dramatic increase in competition in the ﬁnancial
services sector. New entrants in the sector comprise ﬁnancial institutions, whose
shareholding is in the main, indigenous and domestic. The phenomenal growth in the
sector has raised the question of market saturation i.e. whether the sector is not
‘‘overbanked’’. The growth that has taken place in the sector is as shown in Table I.
Out of 41 banking institutions, ﬁve are under management of the curator, two under
liquidation and four are under Troubled Bank Fund (RBZ Monetary Policy Statement, July
2004). The Troubled Bank and Insolvent Policy was introduced in 2001. The fund derives its
mandate from this policy. The Central Bank reports that 73 percent of the banking institutions
in Zimbabwe are considered safe. The highest sectoral growth rates have been recorded in
DOI 10.1108/14720700610706126 VOL. 6 NO. 5 2006, pp. 643-654, Q Emerald Group Publishing Limited, ISSN 1472-0701
Zororo Muranda is Dean of
Commerce and Senior
Lecturer in Marketing, in the
Faculty of Commerce,
Chinhoyi University of