Recapitalisation strategies employed by commercial banks in Zimbabwe

Abstract

Recapitalization has been a world phenomenon, with the major aim being to strengthen the banking system for effective monetary management. Banking sector’s asset and liability discrepancy as well as general instability of the banking sector resulted in the Reserve Bank of Zimbabwe (RBZ) increasing capital requirements from USD 12.5 to USD 100 million. It is against this background that the research seeks to ascertain the reasons behind an increase in capital requirements by Central Bank, the recapitalization strategies being pursued by the commercial banking sector in Zimbabwe and their effectiveness. The issue of recapitalization happens to be a hot issue at Board and top management level and it is hoped that this research may provide a good insight into the possible solutions enabling commercial banks to meet capital requirements. Literature review explores the reasons behind an increase in capital requirements, the challenges facing commercial banks and the recapitalization strategies being implemented. Literature was premised on the work of Yin (1994), where eeffective implementations of recapitalisation strategies is seen as a variable dependent on the independent variables of choice of rights issue, new shares issue, mergers, acquisitions, retained earnings, capital subsidy and loan stock and convertible loan stock as recapitalization strategies. In an attempt to involve an examination of perceptions in order to gain an understanding of social and human activities the interpretive research philosophy was adopted. In addition and for the purposes of collecting original data to describe a population and enable measurement of attitudes and orientations in a large population, a descriptive survey design was deemed relevant for this research. The population covered the 16 major players in the commercial banking sector who are represented in the capital city Harare. Stratified random sampling and purposive sampling methods were used in the selection of top management, board members of banks and Reserve Bank personnel as respondents in this study. A sample of 25 respondents was chosen from a target population of 36. Interviews and a structured questionnaire were the principal research instruments for primary data. The study made use of industry journals, monetary policy statements, strategic reports of commercial banks to gather secondary data..It was revealed in the research that the major reasons behind recapitalization were; to reduce possibility of bank failures, beef up inadequate capital base, curb mismanagement of funds, control, unfair competition, protection of depositors’ funds and ultimately improve the efficiency of banks. The research established that banks were recapitalizing through strategies of; new shares issue, convertible stock, retained earnings, merger, acquisitions and rights issue. These the existing recapitalization strategies were seen as effective because majority of banks have been able to comply. Further recommendations are that banks should consider further strategies in the form of mergers, acquisitions, external capital, and diversification..