A Comparative Analysis of the Corporate Governance Practices in Multinational and Domestic Banks in Zimbabwe
Ndlovu, Milton W., Bhiri, Thomas, Mutambanadzo, Tendekayivanhu, Hlahla, Blessing P., Journal of Emerging Trends in Economics and Management Sciences
The Zimbabwean banking sector has been characterised by a number of corporate governance disorders. This study aimed at analysing the corporate governance practices by multinational banks in comparison to domestic banks in Zimbabwe. It was hoped that the research would reveal the corporate governance discrepancies between multinational and domestic banks and hence assist the Reserve Bank of Zimbabwe in pursuing its supervisory role as well as bring awareness to stakeholders in the banking industry. The research adopted a cross-sectional survey research design. The target population consisted of all commercial and merchant banks in Zimbabwe. Primary data was gathered through questionnaires and interviews. Secondary data was also analysed in the research. The selection of the banks to be included in the sample employed stratified random sampling to ensure representation from each key group of banks in the sample. The study revealed that the awareness on the importance of sound corporate governance practices was of substandard levels for both bank categories. Domestic banks, in particular, had more shortfalls compared to multinational banks. Results further revealed that domestic banks did not represent shareholders' interests in their corporate governance practices and their levels of compliance to Reserve Bank of Zimbabwe's corporate governance requirements was still lacking. Although corporate governance strategies by multinational banks were superior to domestic banks it was established that multinational banks needed to accept local central bank requirements on corporate governance as an engine to enhance their corporate governance strategies.
Keywords: corporate governance, multinational banks, domestic banks, compliance, strategies, Reserve Bank of Zimbabwe.
In the wake of the large-scale financial collapses of viable corporations such as Enron, Worldcom and Parmalat, the corporate world has awoken to the need for implementation of sound corporate governance practices in the 21st century. In view of these corporate scandals in the global economy, considerable recommendations in the governance of companies have been given. These recommendations include Treadway Commission of 1987, Sarbanes- Oxley Committee, Cadbury Committee of 1992, Greenbury Committee, Higgs Committee of 2003 and King Committee of 2002. Such recommendations have led to the development of various corporate governance acts and codes in different countries. Turning to the Zimbabwean scenario, post- independence Monetary Authorities in Zimbabwe had limited interference with banking operations. Banks appeared to have kept off the demands for corrupt dealings despite widespread corruption in other economic sectors. The banking law was enacted at a time when all the banks were multinational and foreign-owned. Prudential regulation of banks appeared, therefore, to be unnecessary. The Banking Act of Zimbabwe then, was the only operational law, and it took no notice of provisions on insider lending, nothing on the maximum ratio of shareholder funds that could be lent to a single borrower, no definition of risk assets nor the amount of capital required to support bank lending, and no provision for inspection of banks except where a case was made for an investigation into fraudulent or other criminal activities.
According to Harvey (1997), the banking system survived this period relatively well. In that regard, when the Zimbabwean authorities embarked on the Economic Structural Adjustment Program (ESAP) and financial liberalization programme in the early 1990s, major rehabilitation of the banks was deemed not necessary. There was therefore, reasonable prospect of the banks being able to survive the change of policy successfully. During this period, registration of domestic banks, owned and managed by local people or organizations commenced. This was because financial liberalization was mainly aimed at removing barriers to entry in the banking sector. …