Through a literature review, this chapter aims to explore the impact of the monetary policies and regulations on bank risks and their operations in Zimbabwe. Section 2.1 will give a brief over view of Zimbabwe and Section 2.2 will discuss the Zimbabwean economy. Section 2.3 will outline a background on the rationale of financial regulation through the exploration of the Basle Accord II. In section 2.4, financial regulation in Zimbabwe and its influence to the economy will be examined. An overview of the banking system and the type of risks it is exposed to will be considered in section 2.5. Section 2.6 will explore the Zimbabwean banking system and its major challenges also linking these to the country"„¢s financial regulation. In section 2.7 the author discusses Enterprise Risk Management (ERM) which is an integrated and holistic risk management framework that organisations are encouraged to use as a change management strategy for managing risks. Section 2.8 will finally summarise this chapter.
Overview of Zimbabwe
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Zimbabwe (formerly Rhodesia) is a landlocked country in south-central Africa. It lies between the Zambezi River which in the north and the Limpopo River in the south. Its neighbouring countries are Zambia, South Africa, Mozambique and Botswana. Zimbabwe's capital city, Harare, is located in the northeast part of the country (Coltart 2008).
Zimbabwe gained its independence from Britain in 1980 after a long armed struggle led by the leading party, Zimbabwe African National Union Patriotic Front known as ZANU-PF, (Makumbe, 2002). It has a population of 13,349,00 people with a gross domestic product that is estimated to have fallen by about 14% in 2008 due to economic disruptions caused by hyperinflation and the further deterioration in the business climate (World Bank 2008).
The economy of Zimbabwe
Chitiga (2004) contends that agriculture plays a central role in the economic performance of Zimbabwe. The agricultural sector is important to the economy for several reasons (Christiansen 1993).In the 1980s, it was the major employer, employing a total of over 70% of the country"„¢s population. The sector continues to be a major employer to this day. In Zimbabwe, droughts continue to be a major problem and raises concern about food security (Chitiga 2004). However despite the ever changing weather patterns affecting the agriculture sector in Zimbabwe, Coltart (2004) notes that agriculture the mainstay of the economy was all but destroyed by the politically expedient and violent land reform program initiated by the ZANU PF government in 2000.
Collapse of Zimbabwean economy
Coorey et al( 2007) argues that, while the initial output collapse is widely attributed to the chaotic seizure of commercial farms in Zimbabwe which is the backbone of the economy, other factors have also contributed in recent years to the county"„¢s collapse which include; 1) high and accelerating inflation of 230 000 000% in 2008, 2) price distortions due to extensive controls and regulation, particularly relating to the exchange rate which is fixed by the Reserve Bank of Zimbabwe (RBZ) at a highly overvalued rate, 3) the collapse of investor confidence due to unpredictable policies and lack of respect for property rights, particularly in agriculture and mining and 4) minimal external financing because of poor relations with creditors and donors and deteriorating economic and social conditions.
(Munoz 2006, Dore et al 2008, Hanke 2008) argue that the RBZ"„¢s polices such as printing of money, quasi-fiscal activities by the RBZ, have specifically caused the economic instability in Zimbabwe. The consensus amongst these authors is that the country"„¢s government policies alongside with the central bank have played a major role in causing hyperinflation which rose to 230 000 000% in 2008. Coltart (2004) highlights that the government is chiefly responsible for an economic meltdown. Muponda (2008) notes that Zimbabwe"„¢s inflation was driven higher by the central bank's lack of independence from the government. Therefore the banks policies have been primarily dictated by the government. The RBZ has been forced to be financier of first choice and literally print money to fund its the quasi fiscal activities.. The challenges faced by Zimbabwe have been contributed by various factors including, the land reform programme in 2000 (Coorey et al 2007), political unrest in the country which has isolated the country from the global community through sanctions and withdrawal of investments and international business community. Research by Cukierman (2001) and the IMF (1996) suggest that countries accorded greater autonomy to their central banks also experienced lower average inflation whilst those economies where there is no central bank independence have higher inflation rates. The influence of the government on the RBZ has resulted in the bank implementing unorthodox monetary practices such as printing of money which has fuelled hyperinflation.
Always on Time
Marked to Standard
Hanke (2008) refers to hyperinflation as the hallmark of Zimbabwe"„¢s economic collapse. The state of the Zimbabwean economy has undergone, major changes with major economic and political reforms implemented by government officials to restore the economic soundness of the country in the year 2009. There is the use of multi currencies in the country as the economy was officially dollarized by the central bank in February 2009 resulting in the removal of the local currency (RBZ 2009). Since the adoption of multiple currencies, deposits into the banking system have grown to US$705.7 million by 3 June 2000 (Government of Zimbabwe 2009). Already, the economy is on a recovery path as reflected by macro-economic stability, inflation reduction, enhanced capacity utilisation, resulting in improved supply of goods and services as well as overall growing business confidence (Biti 2009).
Effective regulation is of fundamental importance for the economic performance of any sector in the economy to address market failure (Jalilian et al 2003). The mishaps and failure of large corporate institutions in the financial sector have caught the attention of regulators, who have taken a more stringent regulatory approach in the financial sector. In recent years, a number of financial crises have brought about a large number of bank failures (Casu et al 2006), such as Barings Bank in 1995 and Northern Rock in 2007. Likewise the banking crises in the early 1980s and early 1990s have shown that banks experience problems which create a potential threat to depositors, investors and the safety of the industry with unpleasant consequences for the economy as a whole (Caprio and Klingebiel 2003). Financial regulation focuses on the factors that are essential to the stability and well being of the financial sector (Stewart 2001).
The susceptibility of banks to contagion creates systemic risk which is the risk that disturbances in a financial institution or market will spread across the financial system (Heffernan 2005). It is the role of the central bank to implement measures to shield the country"„¢s economy from being affected by the results of the crises. Stiglitz (2000) contends that the aim of regulators is to minimise the possibility of a breakdown in the financial sector and prevent any adverse effects on the long term growth rate in the economy. In some instances government have had to rescue banks to avoid the crises from spreading to other banks and affecting depositors as well.. Restrictions on bank activities, risk adjusted minimum capital requirement, direct intervention of managers decisions are three basic devices that can be applied by regulators to control bank risks (Fenandez and Gonzalez 2005).
Minimum capital requirements
Various authors (Besanko and Kanatas 1996, Calem and Rob 1999) however argue that regulations such as minimum capital requirements are likely to increase the risk taking behaviour of banks. According to Kendall (1992) higher capital requirements may cause riskier bank behaviour at some point in time, although it does not necessarily imply a trend towards a riskier banking system. Beatty and Gron (2001) indicate that capital regulatory variables have significant effects for low-capital banks but not necessarily for other banks. Studies by Barth et al. (2004) also indicate that while more stringent capital requirements are associated with fewer non performing loans, capital stringency is not robustly linked with banking crises or bank development or efficiency when controlling for other supervisory and regulatory policies.
Bank authorities regularly attempt to promote bank soundness by imposing restrictions on banks activities (Constantin et al, 2006). In their research, Constantin et al (2006) found that restricting bank activities is negatively associated with bank development and stability. Barth et al. (2001) found that greater regulatory restrictions on bank activities are associated with higher probability of suffering a major banking crisis, and lower banking sector efficiency. Lascelles (2005) adds that a survey conducted by Pricewaterhouse Coopers found that excessive regulation was seen as the greatest risk facing the financial sector. However in contrast to this, Fernandez and Gonzalez (2005) indicate that stricter restrictions on bank activities are effective at reducing banking risk. It would appear overall that restrictions on banking activities forms as a basis of ensuring that banks do not divert from their core business and conduct sound banking practices.
It is because of problems such as the financial crises that the Basle Accord II emphasises on the supervisory role of the regulator. In June 1999, the Basle Committee on Banking Supervision made its long anticipated announcement to introduce a new capital accord to introduce a new capital adequacy framework to replace the 1988 Accord (Ong 2005). This framework was then finalised in June 2004. Cai and Wheale (2007) note that this framework is designed to improve risk management by using models based on past performance to help set the amount of capital banks are required to hold by regulators with the purpose of improving the efficiency of the global allocation of capital. Efforts were made to initiate the new Accord as the first accord of 1988 was highly criticised for its shortcomings. risk.
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The new accord seeks to overcome the problems of the 1988 framework focusing on three pillars (Basel Committee 2005).
Pillar 1 sets out the minimum regulatory capital requirement that is the amount of capital banks must hold against risks. This is intended to cover market risk, credit risk and operational risk.
Pillar 2 defines the process for supervisory review of an institutions risk management framework and, ultimately, its capital adequacy. This pillar points out responsibilities for the board and senior management, emphasising on internal control corporate governance practices established by regulatory bodies in various countries worldwide. Sironi and Zazzara (2003) argue that this pillar gives regulators the right to inspect and supervise the activities of banks to ensure that they are adhering to the requirements of the framework
Pillar 3 focuses on market discipline. In order to improve the transparency of banks to counterparties and investors, banks will be required to disclose detailed information on their risk profile and capital adequacy (Gordy and Howells 2006).
The benefits of the Basle II are noted in the three pillars, as there will be enhanced disclosure, transparency and this will improve on banks risk management processes. Cai and Wheale (2005), site that banks will need to collect and disclose new information and face the implications of increased transparency. Cai and Wheale (2005) add that more information will help enable banks to improve overall risk management which in turn is expected to prompt improvements in corporate governance, transparency and the value of disclosure. Ong (2005), supports this and says that Basle II is very important and it is about improving risk management within the financial industry by providing the correct incentives for better corporate governance and fostering greater transparency.
The Basle accord on the other hand is criticised for some of its shortfalls. For example the fact that the costs of Basle II are significantly high in terms of implementation and continuing basis in the long run (Gordon 2004). Banks lose their flexibility, innovation and development are interrupted. Due to the fact that limited resources are available, many risk managers will spend a long period of time on interpreting regulations, implementing the solutions and then justifying the output to supervisors (Smith and Walter 2003). Hence little time will be available for innovation and development. The compliance with laws and regulations is not able to help banks avoiding all risks.
Zimbabwean Financial Regulation
The Reserve Bank of Zimbabwe is responsible for the formulation; implementation and monitoring of the monetary policy directed at ensuring low and stable inflation levels (Reserve Bank Act). The RBZ does not, however have the operational independence in carrying out this responsibility, as it is required by statute to consult the Ministry of Finance (Dore 2008). This has resulted in the RBZ operating from the executive arm of the government instead of adhering to a binding legal mandate (World Bank 2007). Bade and Parkin (1982) note that political independence is defined essentially as the ability of the central bank to select its policy objectives without the influence from the government. A central bank is said to be independent of its monetary policy if it is not influenced by political cycles or by the preferences of politicians (Eljffinger and de Haan 1996). The RBZ"„¢s policies have been influenced by Zimbabwean political authorities therefore the bank has been lacking central bank independence. Another core function of the RBZ is to maintain stable banking system through its supervision and lender of last resort functions.
Post 2003 monetary polices and regulation
The turning point in Zimbabwean financial services sector was marked by the appointment of the new central bank governor in 2003. During this period the governor issued a monetary policy and financial regulations which sought to minimise non-core banking activities practiced by banking institutions (Dore 2008). The other objectives were to instil market discipline and improve corporate governance and risk management systems. As a result of the RBZ"„¢s severe supervisory efforts, various banking institutions experienced liquidity and solvency challenges. Consequently, nine financial institutions were placed under curatorship whilst 3 were liquidated. Banks currently face risk management challenges, economic and political uncertainties and new regulatory requirements emanating from the RBZ regulations and unstable political environment (Muponda 2008).
The RBZ governor, notes in the 2009 monetary policy (Government of Zimbabwe 2009) that prior to 2003, an adverse macroeconomic environment, weak supervisory approaches, and regulatory forbearance gave rise to a number of fundamental flaws in the operations of banks. These included; 1) a shift from core banking business to speculative transactions, 2) abuse of bank holding company structures to evade regulation, 3) poor corporate governance, risk management practices and insider dealing, 4) rapid local and regional expansion with no proper internal controls, and adequate capacity and 5) disregard of prudential laws and regulations. Smith and Walter (2003) suggest that the fundamental objective of regulators is to develop frameworks and guidelines that will further strengthen the stability of banking system. This objective is achieved in promoting the adoption of these frameworks in banks. To enhance the supervisory process, the RBZ has developed and issued guidelines for the banking sector in order to address operational and structural deficiencies prevailing in the financial sector, (Government of Zimbabwe 2009). These guidelines are shown below in table 1.
Basel II implementation
The Basel II implementation in Zimbabwean banking industry is still in its preliminary stages. A survey by Ernest and Young in 2005 (Lescellos 2005) shows that many banks in developed countries have come up with implementation programmes of Basle II whilst in developing countries implementation is still at the initial stages. This survey is confirmed by evidence of the current implementation status in Zimbabwe. The current guidelines setup by regulators in Zimbabwe is that all banking institutions must fully adopt standardised approaches for allocation of capital for risk (credit, market and operational). However a technical guidance on Basle II implementation in Zimbabwe will be issued in due course to provide a road map and expert guidance on full Basle II implementation in the country, (Monetary Policy 2009).This shows how slow the progress has been in the full implementation of the framework in Zimbabwe, and could be the cause of the major problems faced by country"„¢s the banking industry. Cai and Wheale (2005) however report that awareness and preparation for Basel II in the emerging markets and developing countries has increased significantly over the past two years.
It is widely accepted that the banking system has a unique position in the national economy (Heffernan 2005). A banking system that is able to operate efficiently is of crucial importance to any economy (Quagliariello 2002). The banking system must not only be efficient in carrying its role as an intermediary in the financial market but it must also be economically robust to withstand adverse shocks such as a major policy change to economic downturn. Traditional functions of banks include lending money to borrowers and taking deposits. They play a financial intermediary role of providing loans to borrowers and collecting deposits from savers (Casu et al, 2006). Poorly operating banking systems can impede economic growth, intensify poverty and destabilise the economy. These poor operations can be due to banks with inadequate risk management processes (Stiglitz 2000).
The nature of banking activities eposes banks to the following risks Due to the nature of banking activities, they are exposed to various risks. These credit risk, market risk, liquidity risk, operational and foreign exchange risk.
The Basle Committee on Banking Supervision (2000) define credit risk as the potential that a borrower or counterparty will fail to meet its obligations in accordance with greater terms. Credit risk is associated with the traditional lending activity of banks and it is simply described as the risk of a loan being repaid in part or full (Casu et al, 2006).
This is the possibility that a bank will be unable to meet its liquid liabilities because of unexpected withdrawals of deposits. An unexpected liquidity shortage means that the bank is not only unable to meet its liability obligations but also unable to fund its illiquid asset (Matthews and Thompson 2008)
Interest rate risk
Financial intermediaries are potentially exposed to interest rate risk because of the mismatch between the maturity, or time to repricing of their assets and liabilities (Faff and Howard, 1999). The interest rate sensitivity exhibited by a financial institution will depend, in part, on the approach which its management adopts to controlling risk.
The Basel Committee on Banking Supervision in 2003, recommended the correct determination of the risks to which a banking organization is subject. This concerns, in particular, operational risks, which are all those management events that may determine unexpected losses (Cornalba and Guidici 2005). The New Basle Accord (2000) defines operational risks as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events (such as political and economic factors), including legal risk but not strategic and reputation risk.
According to Matthews and Thompson (2008), market risk is the possibility of loss over a given period of time related to uncertain movement in market risk factors such as interest rates, currencies equities and commodities.
Foreign exchange risk
Exchange rates may change rapidly which exposes firms to foreign exchange rate risk, which is the risk that losses may arise from rises or falls in the value of a currency in terms of the domestic currency. Eichenbam and Evans (1995) suggest that there is a link between monetary policies and foreign exchange rates. Contractionary shocks to monetary policies are followed by sharp persistent increases in exchange rates, which ultimately results in foreign exchange rate risk.
Other risks that affect banks include strategic, regulatory and legal and compliance risk
There is a clear sense that risk exposure of the financial system has increased by changes that have taken place (Hellwig 1995). Casu et al (2006) notes that changes such as deregulation, conglomeration, and globalisation have posed serious risk challenges. Calomiris and Maso (2003) emphasise that the risk taking behaviour of banks affects financial and economic fragility. In turn regulators have undertaken greater efforts of regulation to impose new risk management standards to shape bank risk (Elsinger et al 2002). In compliance to this banks have improved their risk management systems. Examples of other regulatory reforms advocating for risk management frameworks are the Sarbanes Oxely Act of 2002, the Basle Accord II and the Committee of Sponsoring Organisations of the Treadway Commissions (COSO) Enterprise Risk Management of 2004.
Zimbabwe banking sector
The Zimbabwe financial sector consists of the Reserve bank, discount houses, commercial banks, merchant banks, finance houses, building societies, a development bank and the Post office savings bank, insurance companies, pension funds and a stock exchange, (Dore 2008). There are currently twenty-eight banking institutions in Zimbabwe,fifteen commercial banks, six merchant banks, three discount houses,4 discount houses and one development bank. All banks are licensed by the RBZ and regulated under the Zimbabwe Banking Act of 1999.
Zimbabwe"„¢s financial services sector has witnessed phenomenal growth since economic deregulation in 1991 (Muranda 2006). During the period of 1991 to 2003 new domestic banks entered, financial sector. New Innovations and development have been witnessed with the introduction of new products and services within the sector. Table 1.2 below shows the banking sectors growth trend from 19992 to 2004 of financial.
However the banking sector has been gripped with many challenges, which began to surface during the period of the land seizures in 2000. These policies created extremely difficult economic and political challenges for the banking industry. The IMF (2006) argues that events in the banking sector have been concurrently influenced by political factors.. The situation was heightened in 2003 by the new regulations set by the appointed RBZ governor. It was reported by Voice of America (2004) that at least six of Zimbabwe"„¢s new commercial banks are were in trouble. It linked this distress to the governments new monetary policy announced in December 2003, in which the central bank vowed to stop speculation in the Zimbabwe dollar and related instruments.
Biti (2009) in the Zimbabwean fiscal policy points out that between 2000 and 2008, the financial sector has severely been undermined by inconsistent macro-economic policies, negative real interest rates, massive capital flight and erosion of deposits. Overall, the financial sectors balance sheets were reduced to less than 25% of their 2004 value, reflecting an erosion of the real value of financial assets and liabilities in Zimbabwe dollars (World Bank 2005). In order to remain afloat, most banks have had to downsize their operations by closing some branches, especially those in the outlying service centres, leaving about 65% of the population without access to banking services. The rural areas were particularly affected by this. Factors that have influenced liquidity risks include frequent ad hoc changes in interest rates by the RBZ, lengthening of maturity of treasury bills at highly negative interest rates (IMF 2008). Foreign exchange risk in the banking sector has increased because of the dominance of foreign currency transactions (Hanke 2008).
Dhiwayo (2004) reports that, prior to the introduction of the new monetary policy in December 2003, the Zimbabwean banking sector was characterised by poor corporate governance and risk management systems, high levels of insider abuse through assessed loans to related parties (often relatives and friends), overindulgence in speculative non-core banking activities, inadequate capitalisation, lax prudential supervision and regulatory forbearance. This report highlights that three financial institutions were placed under liquidation whilst nine were placed under the administration of a curator. In light of this the central bank adopted a framework known as the Troubled Bank Resolution Framework (RBZ 2004) to effectively deal with banks experiencing problems. They key objectives of this framework were to: 1) restore stability of the financial sector, 2) strengthen the banking system and promote sound banking practices, 3) develop permanent solutions for troubled banking institutions and 4) promote economic development and growth.The Zimbabwe Allied Banking group was formed in 2005 which was amalgamation of the some of the troubled banks.
Dollarisation of the economy
Over the years the financial sector has been experiencing various challenges such as, cash shortage, foreign currency black markets, abolition of notes and coins and the use of bearer cheques, loss of confidence in the banking system by depositors and the most influential factor which is inflation. Many depositors have lost their savings.
Prior to 2009, the Zimbabwean economy had been unofficially dollarised. Unofficial dollarisation occurs when people hold much of their financial wealth in foreign assets even though foreign currency is not a legal tender. It can include the holding of foreign bonds and other non-monetary assets, foreign-currency deposits (either abroad or domestically), and foreign notes (paper money) in wallets, under mattresses, and in safe-deposit boxes, (Hanke, 2008). However in the January 2009 monetary policy, the RBZ governor approved that all sectors in the economy can operate in foreign currency and that lending will be two tier, that is in local currency and foreign currency. Dollarisation has the effect of moderating the adverse effects of inflation on financial intermediaries"„¢ balance sheets (Ize et al 2004). This It could be argued that this two tier market system exposes banks to credit risk (in the form of settlement risk and default risk).
Minimum capital requirements
A capital verification exercise conducted by the Reserve Bank in January 2009 indicated that of the twenty eight (28) banking institutions operating in the country, fifteen were found to be in compliance with the minimum capital requirements whilst three are marginally below, with the remaining ten being undercapitalised. Capital regulation is motivated principally by the concerns that a bank may hold less capital than is socially optimal to its riskiness and negative externalties (Rime 2001). Chiuri et al (2002) considers that the enforcement of capital requirements has had a negative effect on the supply of bank loan over a period of time and the effect tends to be stronger for initially less capitalised banks. The adverse impact of more stringent minimum capital requirements has been somewhat smaller on foreign owned banks than it has on domestic banks (Clarke et al 1999).
Enterprise Risk Management
A recent trend in risk management has been the development of an integrated, enterprise wide approach to assessing the business risks that can impact an organisation to achieve its objectives and to develop programmes for managing those risks (Miccolis et al 2001). In contrast to the traditional silo approach to managing risk, the ERM approach requires that a company-wide approach be taken in identifying, assessing, and managing risk, (Liebenberg and Hoyt, 2003). ERM enables firms to benefit from an integrated approach to managing risk that shifts the focus of the risk management function from primarily defensive to increasingly offensive and strategic (Bies 2004). Various risk management bodies have been influenced by the proposals of ERM.COSO (2004), defines ERM as:
A process, effected by an entitys board of directors, management and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.
The common method of risk management has been known to treat risks separately. Under this approach according to Lam (1997), Cumming and Hirtle (2001), various categories of risk are managed separately in individual risk silos. Liebenberg and Hoyt, (2003) also criticise the traditional risk management approach as a highly disaggregated method of managing firm risks. An enterprise-wide approach to risk management treats each of these risk classes as part of the firms overall risk portfolio that is managed holistically.
Kleffner et al (2003) observes that financial institutions often manage risks in individual risk silos. To manage risk on an enterprise wide basis, banks must expand their focus beyond traditional concepts to include economic and political factors along with risks related to reputation, ethics and data integrity (Pricewaterhouse Coopers 2002). It is therefore important in this research to examine how banks have adopted their risk management framework having considered political and economic factors affecting Zimbabwean bank s. Although ERM is increasing, not as many institutions have implemented it (Walker et al 2002). This may be due to lack of knowledge on its benefits, lack of commitment from board of directors, lack of experienced and qualified risk personnel , a corporate culture that discourages ERM and inadequate systems and technology (COSO 2004).
Lam (2007) encourages banks to adopt an ERM programme regardless of their level of sophistication in risk management. He identifies three reasons why banks should adopt ERM: 1.) banks face complex risks that are highly interdependent, and an ERM framework enables a bank to manage all major risks and their interdependencies, 2) an ERM framework provides the overall architecture for a banks risk management programme and 3) empirical research and industry surveys have indicated that there are clear business benefits for adopting an ERM programme.
Liebenberg and Hoyt, (2003) observe that ERM benefits firms by decreasing earnings and stock-price volatility, reducing external capital costs, increasing capital efficiency, and creating synergies between different risk management activities. It would appear that ERM helps an organisation to function as a whole or one system as various units dependant on each other. This enables risk management to be implemented fully as risks are consolidated and not treated separately.
Influencers of ERM
The trend toward the adoption of ERM programs is usually attributed to a combination of external and internal factors. The major external influences that have driven firms to approach risk management in a more holistic manner are a broader scope of risks arising from factors such as increased regulatory attention to corporate governance and technological progress that enables better risk quantification and analysis (Miller, 1992; Lam and Kawamoto, 1997; Miccolis and Shah, 2000). Changes in regulations imply that institutions have to implement more effective and efficient risk management processes in compliance with standards set (Beasley et al 2005).
Main Guidelines to banking sector
Barton et al (2002) and Walker et al (2002) cite that for ERM to be implemented there must be a chief risk officer (CRO). These individuals are often expected to hold advanced degrees and posses a high level of technical expertise (Thiessen et al 2001) Proponents of ERM agree that firms choosing to adopt an ERM strategy need a person or group of persons responsible for the coordination of the ERM program and the communication of goals and results to the board. The responsible CRO also needs to promote ERM to management and elevate the risk management function to one that informs the firms overall corporate and financial strategy, (Liebenberg and Hoyt, 2003). Haubenstock (199) argues that it is better to manage these risks via a single organizational unit that bears direct responsibility for supervising the entire process rather than by a committee or group of committees.
This chapter has focused on financial regulation in the Zimbabwean banking sector and how this influences banks risk taking behaviour and restricts banking activities. Literature also appears to indicate that the recent introduction of ERM is also critical to banks although not many institutions have implemented it. An overview of the Zimbabwean economy and the country"„¢s financial regulation was undertaken and the various challenges that have affected them. However there are very limited empirical studies specifically related to Zimbabwe that model the relationship between central banks monetary policy and bank risks which was the sole purpose of this research. The next chapter seeks to cover how this information can be obtained from the perspective of Zimbabwean banks.