ENRICH JOURNALS

Int J Res Rep 2016; 2 (2): 55-64.

INTERNATIONAL JOURNAL OF RESEARCH AND REPORTS Volume : 2 | Issue : 2 | 2016

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Corresponding Author: B. Ngwenya. Ph.D. Senior lecturer, Faculty of Business, Postgraduate Department, Solusi University, Zimbabwe.

Citation: Ngwenya B, Chiwawa D. Impact of liquidity crisis on bank’s response towards corporate social responsibility: A Case Study of Commercial Bank of Zimbabwe (CBZ) Ltd Harare period (2009-2014). Int J Res Rep 2016;2(2):55-64.

Conflict of Interest: None

Copyright: © 2016, Ngwenya B et al. This is an open access article distributed under the terms of the Creative Commons Attribution License, whichpermits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

ARTICLE : BUSINESS STUDIES & MANAGEMENT

Impact of liquidity crisis on bank’s response towards corporate social responsibility: A Case Study of Commercial Bank of Zimbabwe (CBZ) Ltd Harare period (2009-2014)Authors: B. Ngwenya1, D. Chiwawa2

1Ph.D. Senior lecturer, Faculty of Business, Postgraduate Department, Solusi Univer-sity, Zimbabwe.2MBA. Student, Faculty of Business, Postgraduate Department, Solusi University, Zim-babwe.

ABSTRACT

The Zimbabwean banking sector, has been in dire straits, with critical liquidity problems that have curtailed the banks capacity to fund their working capital, and lending. The period understudy, that is, 2009-2014 has been the worst. The argument is that the liquidity crisis has led to the fragility, if not complete shift of the organizations’ corporate social responsibility (CSR) policies. The study employed a quantitative research design, with a population of 250 employees of the CBZ bank. A purposive sample of 65 respondents was drawn from the non-management staff levels, middle management levels, and senior management levels, who operated in Harare, the capital city. The results of the study are that the funding working capital has been a challenge to CBZ bank during the liquidity crisis period of 2009-2014, there was very low response to corporate social responsibility, that is, the bank’s contribution towards corporate social responsibility has been basically minimum, however, interestingly to note, the bank remained committed to its corporate responsibility programs. The bank`s capacity to lend was also seriously impaired. The bank has not been lending to both individuals and corporates because of liquidity crisis experienced in the country during the period under study. However, the study revealed that there was no significant relationship between the liquidity crisis and CBZ bank`s response to corporate social responsibility over the period under study.The study recommends further future research to investigate the same phenomena with other banks in Zimbabwe and abroad. Subsequently, a larger sample of the participants could be considered to enhance more generalizability of the findings. Further future research alternatively could investigate if the same patterns that actually prevailed in this research study apply to different sectors, such as retail and manufacturing.

Key words: liquidity crisis, working capital management, lending capacity, corporate social responsibility

Article ID: IJRR10549MS

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INTRODUCTIONThe aim of this research study was to assess the impact of liquidity crisis on CBZ bank towards its Corporate Social Responsibility policy. An evaluation was conducted, based on CBZ Bank, a company that is registered and has previous record of CSR policies in Zimbabwe; the research ascertained whether the liquidity crisis directly affected Corporate Social Responsibility performance during the global financial crisis 2009 -2014. This research encourages a qualitative discussion as far as relationship between liquidity crisis and CSR response is concerned in various organizations in Zimbabwe. The 2009-2014 global financial crisis constituted the biggest threat to organizations around Zimbabwe due to the damages as well as the losses businesses experienced during this period. However, despite these challenges faced by organizations in the country and abroad as a result of global liquidity crisis, the challenges also brought about some opportunities particularly during the post-crisis era in areas such as the commercial banks’ corporate image and reputation and subsequently some suggested that CSR activities and programs are crucial in overcoming some social ills caused by the liquidity crisis in the business community.

Statement of the Problem

The severe financial crisis that Zimbabwe experienced during the period 2009-2014 has led to a number of researches being conducted, primarily about the causes of the liquidity crisis, as well as its development, the impact of the crisis across various sectors. Subsequently some offered solutions to the crisis. Since liquidity challenges in Zimbabwe have raised difficulty in managing constrained finances, businesses in the world as well as in Zimbabwe started prioritizing liquidity management strategies and these actions were done as a way of ameliorating the financial challenges they experienced during this period. “Since the adoption of the multi-currency regime, most companies in Zimbabwe including commercial banks were undercapitalized and struggled to fulfil their obligations according to the Commission of the European Communities survey on Zimbabwe (2010), the Zimbabwean banking sector, has been in dire straits, has lacked adequate capacity to fund their working capital from 2009-2014, which is the period under review and an assessment of these liquidity problems in Zimbabwe point to the fragility if not complete shift of organizations’ Corporate Social Responsibility (CSR) policies because of the liquidity crunch in Zimbabwe, therefore this study seeks to ascertain the impact that the liquidity crisis had on CBZ bank during 2009-2014 period.

Purpose of the Study

There are a few studies that have been conducted to link the global financial crisis and the performance of banks as far as CSR activities are concerned. The researches conducted so far are not much satisfactory so in principle the purpose of the study is to analyze the relationship between liquidity challenge crisis and the banks response towards its corporate social responsibility policies in the wake of liquidity crisis and, the research will establish if indeed there is an impact caused by liquidity crisis on the bank’s response to its CSR policy. Afterwards, the purpose of the research will be to suggest some strategies to use in times of liquidity crisis without significant interruption of the core businesses of the organizations.

Research Questions

The study sought to answer the following research questions;

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1. What is the state of CBZ’s corporate social responsibility over the period 2009-2014?

2. To what extent is CBZ bank affected by the liquidity crisis during the period 2009-2014?

3. Is there any significant relationship between the liquidity crisis challenges during the period 2009-2014 and CBZ bank’s response to corporate social responsibility?

Hypothesis

There is no significant relationship between liquidity crisis and CBZ bank’s response towards corporate social responsibility over the period 2009-2014.

REVIEW OF RELATED LITERATUREIn Zimbabwe, public awareness on Corporate Social Responsibility (CSR) is slowly catching up to Western trends, Zimbabwean consumers are becoming aware of their rights to quality service, safety and better products. The media has helped in creating public awareness on the importance of CSR and we have leading companies and banks that are now taking CSR seriously, other organizations that are yet to take visible roles in CSR will learn from those that have embraced CSR as part of their corporate culture. As public awareness on CSR response increases in Zimbabwe, it will soon catch on to companies that violate the environment in contravention of the environmental protection and management Act.Arevalo & Aravind (2011) support the view that CSR is elaborated in its unique way depending on the stakeholder expectations. Carroll (2001) mentions that CSR’s meaning is changing over time while Fernandez (2005) posits that it is a useful marketing tool. It can ensure a long term value and gain competitive advantages mitigating a new type of risk that has emerged, known as social risk (Giannarakis, 2001). Corporate Social Responsibility and Financial Performance: in the modern business world, corporate social responsibility has been emphasized by stakeholders as a driving tool for success to be accomplished. Orlowska (2010) asserts that by anticipating and minimizing the potential conflicts between corporations and society, CSR plays a role in reducing the costs of such conflicts which may in the long run lead to higher NPVs. Another study by Karaibrahimoglu (2010) demonstrated that CSR may act as a credible signal of a firm’s trustworthiness in providing quality products. The underlying principle behind CSR shows that companies that exhibit stakeholder responsibility enjoy risk adjusted above-average returns. The most important negative impact of CSR to banks is the potential cost for the implementation of CSR initiatives. Companies need to change or redefine their business objectives in relation to social expectations (Teoh, 2009). This argument is based on the assumption that the principal function of business is economic not social, as such this should be the sole criterion judging the function of the business only other function than profit maximization result in deliberate sacrifice of profits or impairment of profitability. This argument presupposes that since organizations are artificial persons they can’t have any other responsibility besides maximizing artificial profits and they suggest that only people can have responsibility by such if workers feel they have to contribute to social well-being, they should do that using their personal wealth and provided they will not affect the profit and the operation of the business by tempering with the shareholders’ wealth. However, this line of argument is myopic and a fallacy of generalization as it centers on profit only as if

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profits of any individual firm as opposed to the corporate sector implying that such profit margins may not necessarily mean highest efficiency from society’s point of view. There are also other indicators of success other than profitability only, there is a concern for the efficient and egalitarian distribution of national resources for the benefit of the majority (utilitarianism) and as such profitability is not the best measure of effectiveness so this view of competing claims holds a little water and is a product of competitive model of capitalism and this preoccupation with maximizing profits may be suicidal in the long run (Arevalo & Aravind, 2011). Historically, the economic responsibility for a corporation has been to make a profit which supports employment, wages, purchases, investments and taxes (Arevalo & Aravind, 2011). Arevalo & Aravind (2011) considered and argued that the only responsibility of corporations was profit maximization. The authors go on to highlight that governments should manage externalities and provide public goods. The idea of the profit turned over time to the profit maximization, which mirrors the current situation. Orlowska (2010) state that today, there is no contradiction between CSR and profit maximization. CSR is part of the maximization of profits in the long term. In current research, the CSR concept is well considered and has begun to shift from wether it should exist or not, to why it does exist and how it affects the economy. CSR is a way for companies to mediate their trust with stakeholders in order to create financial values and improve people’s everyday lives, but it also serves as a channel that corporations can use in order to communicate what they are doing. This communication channel gives investors a chance to evaluate the level of risk and possibilities of the corporation. In addition to the license to operate, which is an informal approval from stakeholders that involves the overall expectations of companies to be productive, deliver returns to the capital owner, create jobs for employees, produce quality products, pay interest rate to the lenders and consider the environment and the social impact from the operations the company should have a CSR strategy (Orlowska, 2010). The economic responsibilities for a company should also concern performing in a manner consistent with maximizing earnings per share and being as profitable as possible. These two statements go in line with the business strategy to identify a strategic position which opens up for an effective and competitive position at the market (Orlowska, (2010). In Carroll’s CSR pyramid, the economic responsibility forms the foundation and is an important basis for the other dimensions. The next dimension in the pyramid is the legal responsibility. The society has expectations of a corporation not only to be profit maximizing, but also to follow the law and regulations promulgated by the government. Orlowska (2010) describes the legal responsibility as a “social contract” between business and society and he highlights the importance for a company to be run in such a way that is consistent with the requirements of the authorities and government and the importance of fulfilling the legal obligations. The economic mission should be reached within the framework of the law, or at least doing business that meets the minimal legal requirements. The expectations changes over time and today CSR is not optional for large listed companies. In order to succeed with the CSR strategy, it is important that the CSR goes in line with the organization’s own values and ethics. All the parts form the CSR, and the ownership, leadership and employees have to be involved in order to complete the CSR strategy (Orlowska, 2010).Literature provides conflicting results on the relationship between corporate social responsibility (CSR) practice and liquidity challenges performance with some studies showing a positive relationship (Fernandez, 2005), others negative and still others showing that there is no relationship between the two variables. The liquidity crunch crisis experienced between 2009-2014 was an eye opener to many financial institutions in Zimbabwe to start appreciating the importance of liquidity risk. It was thus noted that banks have had to strengthen and manage liquidity risk management.

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The challenges posed by a liquidity crisis is that it may affect a bank’s capital reserve and in an extreme circumstance, it may result in the demise or collapse of the banking system or much worse in solvent a bank. Banks may possibly have to extend their borrowing from the market even at a high interest rate during a liquidity crisis to manage and support their obligations both financially or morally. A bank’s further borrowing to meet depositors’ demand may place the bank’s capital at stake. Thus, debt to equity ratio will rise, affecting the bank’s effort to maintain an optimal capital structure. A bank may refuse the lending, even to a potential entrepreneur, if it feels that the liquidity need of the bank is quite high. This is an opportunity lost for the bank. If a bank is unable to meet the requirements of demand deposits, there can be a bank run. A mismatch in depositors’ demand and production of resources forces a bank to generate the resources at a higher cost. From a marketing perspective, it is essential for a bank to be aware of its liquidity position. It helps to expand its customer loans in case of attractive market opportunities. In the Zimbabwe context, the liquidity challenges have caused banks to operate at less than their full potential and capacity and effectively that has constrained their ability to embark on other interest income generating initiatives with most of them failing to cover their operating overheads. According to Fernandez (2005), the Zimbabwean situation is however unique in that the challenges are not peculiar to a single or selected financial institution but rather to the economy as a whole as was noted by Fernandez (2005) when he said that the persistent liquidity shortages in the economy continue to undermine the country’s ability to maintain and sustain the robust economic growth achieved since the introduction of the multicurrency system. The sophistication of liquidity management and liquidity risk depends on the size and characteristics of each bank as do the nature and complexity of activities held by it. The management of liquidity policies of a bank has to include a decisional structure for the risk management, a pattern or a strategy for approaching operations and funding, a set of exposure limits to liquidity risk and a set of procedures for planning liquidities after alternative scenarios including crisis situations (Fernandez, 2005).

METHODOLOGYThe research used quantitative research as well as secondary data provided by the previous researchers and also the data from the statistical records and inside sources provided by CBZ bank to assess the impact of liquidity crisis on the response of the bank towards CSR policy, the research study was carried out in Harare CBZ headquarters. The study focused on the impact of the liquidity crisis and the bank’s response towards CSR and how the response was affected by independent variables. The attributes of quantitative researches are that it provides a statistical and numerical point of view, based on the collected data. The qualitative research’s main features are that it handles words rather than numbers, which benefits this study as it aims to get a deep understanding of how the liquidity crisis affects CSR activities. The qualitative method was not expected to supply the researcher with the kind of data that builds depth in the knowledge area of Corporate Social Responsibility which means that the quantitative approach used obtained a deeper understanding to the problem being studied, rather than an explanation to it. The target population was made up of 250 Employees both lower, middle and senior management who are operating in Harare. The researchers used purposive sampling and chose 65 employees of CBZ Harare from a total population of 250. The population was drawn from the total number of CBZ bank Harare and due to some limitations a total of 65 questionnaires were distributed to all levels of staff in the bank conversant with the subject of liquidity that is the lower, middle and senior management. The chosen sample population of sixty-five employees constituted the sample size of the population for study; thirty were lower

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level staff, twenty middle managers and fifteen senior management staff were chosen for this study, to obtain an insightful information if possible, while suiting the purpose of the study. The respondents had a critical feature in common which was that they were employees of CBZ bank in Harare.The responses were based on levels of management. Out of 50 respondents, 20% were from lower level staff, 17% were from the middle level management and 13% were from the senior level management, reflecting a total response rate of 76% as shown in table 1 below.Table 1: Response Rate on the questionnaire

Target Group Quest ionnaires Sent

No. of completed Questionnaires Response Rate %

Lower level staff 30 20 30

Middle managers 20 17 26

Senior managers 15 13 20

65 50 76%

RESULTS AND DISCUSSIONThe results were based on the descriptive statistics and qualitative data that were gathered in the field of study, CBZ Bank. Descriptive statistics, regression, statistical data analysis using IBM SPSS 22.2.0 (2012) statistical package was used to test the significance of the relationship between variables. Summaries of these tests based on the research findings were presented in the form of tables, graphs and pie charts. Subsequently the results were then analysed and discussed in light of the presentation of the literature reviewed.

Research question 1

What is the state of CBZ’s corporate social responsibility over the period 2009-2014?Table 2: Descriptive Statistics

Descriptive Statistics

N Mean Std. Deviation

Que17 50 3.9200 .69517

Que18 50 3.2400 1.37855

Que19 50 3.4800 1.44618

Que20 50 2.8200 1.49407

ave_csrrhl 50 3.3650 .84093

Valid N (listwise) 50

The standard deviation is a description of the data’s spread and it shows how widely it is distributed about the mean. A smaller standard deviation indicates that more of the data is clustered around the mean. A larger one indicates the data are more spread out and in his case a mean of 3.3650 which is above the standard deviation of 0.84093 suggest that the CSR response has been low during this period under study.

Research question 2

To what extent is CBZ bank affected by the liquidity crisis during the period 2009-

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2014?Table 3: Ability to fund working capital

Descriptive Statistics


CBZ has been able to finance its working capital 50 2.8600 1.32496

Our bank has been getting funding support from RBZ during this period

50 2.2200 1.35962

The bank has had adequate Funding working capital 50 2.8600 1.49843

Our cash-flow has been not constrained due to liquidity challenges 50 3.5000 1.59399

ave_fwc 50 2.8600 .91913


On the banks’ ability to fund its working capital the statistics show an average mean of 2.86 which suggest that the bank had challenges financing its working capital, and also the statistics show standard deviation of 0.919. The standard deviation of 1 indicates that the perceptions do not deviant much from the mean according to research on working capital carried out abroad as research conducted by Fernandez (2005).Table 4: Descriptive statistics on capacity to lend


Capacity to lend has not affected banks CSR policy 50 3.7800 .99571

Our interest rates were low making it easy for customers to borrow 50 3.3800 1.25990

Closure of businesses in Zimbabwe didn’t affect CBZ’s profitability 50 3.7000 1.03510

CBZ has been issuing loans to both individual and corporate customers

50 2.8000 1.30931

ave_ctl 50 3.4150 .62395


The average mean on capacity to lend recorded an average of 3.4150 and a standard deviation of 0.62395 response on capacity to lend is 0.62395 a mean of greater than 3 suggest that the bank in terms of capacity to lend was affected by liquidity crisis variables in Table 4 above. The table above shows an analysis on the capacity to lend vis a vis CSR policy, banks and building societies have been committed to being responsible members of their communities for a long time.Table 5: Descriptive statistics on deposits


The deposits levels were higher during this period 50 3.3800 1.48310

The bank’s revenue during this period increased 50 4.1000 .64681

The bank’s deposits were not affected by high default loan percentage affected by liquidity

50 2.6200 1.36860

Introduction of multi-currency system impacted on the banks’ deposits

50 3.5600 1.19796

ave_dep levl 50 3.4150 .45065

Valid N (listwise)

Table 5 above shows levels of deposits which recorded an average mean 3.4150 and standard deviation of 0.45065 which is below a significant value of 0.05 which suggest that the bank experienced few deposits during the period and this could have been attributed to the introduction of multi-currency regime in that period which could have led the banking public lose confidence in their banking sector and instead could have opted to keep their money outside the formal banking channels, subsequently

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this could also suggest that the bank current assets ratio has been minimum making it difficult to practice CSR.

Research question 3

Is there any significant relationship between the liquidity crisis during the period 2009-2014 and CBZ bank’s response to corporate social responsibility?Table 6: Model Summary

Model Summary

Model R R Square Adjusted R Square Std. Error of the Estimate

1 .369a .136 -.114 .565

a. Predictors: (Constant), Multi Currer, Closure Bus No, Rev Increase, Cash Constrain, Low Interest, Indiv Depos, Lend Indiv, RBZ Funding, FinWorkCap, Corp Depos, Lend Corp

Table 6 above reflects the regression statistics which indicates how well the data collected on liquidity crisis as an independent variable could be used to predict the level of variability on the corporate social responsibility levels. From Table 6 above, a Sig. value of 0.565 indicates that the model could not predict the CSR response from liquidity crisis as there are other components that are critical besides monetary donation or charity things like good corporate governance, protecting the environment, providing service that is affordable to the majority.

Hypothesis

There is no significant relationship between liquidity crisis and CBZ bank’s response towards corporate social responsibility over the period 2009-2014. Based on results in the Table 7 below, the financial crisis did not affect or statistically predict CSR levels, Beta values range below 1 and negative, and the values of significance, p range above 0.000. Since p > .05, we conclude the Null hypothesis, that there is no significant relationship between the liquidity crisis and CBZ bank`s response towards corporate social responsibility over the period 2009-2014 is accepted. There is statistically no significant difference between the liquidity crisis and CBZ`s CSR levels. All the variables had no statistical significance to the outcome variable, p >.05. Table 7: Co-efficient

Model Unstandardized Coefficients

Standardized Coefficients

T Sig. 95.0% Confidence Interval for B

B S t d . Error

Beta L o w e r Bound

U p p e r Bound

1 (Constant) 4.133 .563 7.345 .000 2.994 5.273FinWorkCap .033 .067 .086 .502 .619 -.101 .168RBZ Fundng .028 .063 .077 .442 .661 -.100 .156Cash Constr -.061 .061 -.163 -1.000 .323 -.183 .062Lend Indiv -.118 .074 -.261 -1.583 .122 -.268 .033LowIntrest .051 .085 .104 .598 .554 -.122 .224ClosrBusNo .002 .054 .005 .031 .976 -.107 .110LendCorp .022 .074 .054 .302 .765 -.128 .172IndivDepos -.057 .076 -.118 -.743 .462 -.211 .098RevIncreas .040 .099 .062 .400 .692 -.161 .241CorpDepos .024 .087 .048 .277 .783 -.152 .201MultiCurrer .034 .090 .065 .373 .711 -.149 .217

a. Dependent Variable: CSR Extend

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This hypothesis was tested based on survey responses shown in the model summary above and Table 7 above using multi regression model test as shown by statistics in table and the null hypothesis is rejected from the statistics, the results did not predict an impact caused by liquidity crisis on CSR.

Findings of the Study

The findings from the research study are as follows:1. Funding working capital has been a challenge to CBZ bank during the liquidity

crisis period of 2009-2014.2. The study`s findings revealed a very low response to corporate social

responsibility during the liquidity crisis period, that is, the bank’s contribution towards corporate social responsibility has been basically minimum, however, interesting to note is that the bank remained committed to corporate responsibility programs.

3. The bank`s capacity to lend was also seriously impaired. The bank has not been lending to both individuals and corporates because of liquidity crisis experienced in the country during the period under study.

4. The study also revealed that there is no significant relationship between liquidity crisis and corporate social responsibility by CBZ bank over the period under study.

DISCUSSIONCBZ bank reflected a very low and weak state of corporate social responsibility over the period 2009-2014, which was characterised by liquidity crunch in the Zimbabwean economy. The results of the study clearly show that the bank`s ability to manage its working capital was severely curtailed by the liquidity challenge over the period under study. The importance of working capital management is critical for banks and companies in general, in order to ensure that the business has enough liquidity. Bank liquidity refers to the ability of the bank to maintain sufficient funds to pay for its maturing obligations. It is the bank’s ability to immediately meet cash, cheque, other withdrawal obligations and legitimate new loan demand while abiding by existing reserve requirements (Arevalo & Aravind, 2011). The point that liquidity is all about a bank or firm’s ability to meet obligations as they fall due was also noted by Arevalo & Aravind, (2011). When banks face challenges to meet their financial obligations, normally they outsource the funds from the central bank, as a lender of last resort, of that particular country to bridge the financial gap. Arevalo & Aravind (2011) suggest that liquidity eventually may be exhausted even for central bank as well. Zimbabwe`s central bank was also affected by the liquidity crisis. The findings of the study revealed that the bank`s ability to lend was also curtailed during the period in question. This is in agreement with Arevalo & Aravind (2011) who suggests that the reasons for limited lending range from incapacity and unwillingness for fear of bad debts normally associated with an illiquid market. Coincidentally the corporate social responsibility levels of CBZ ran low during the liquidity crisis period. However, the study failed to find any significant relationship and correlation between the liquidity crisis and the levels of the bank`s corporate social responsibility. This is in line with literature that most of the organisations employ the discretional policy when it comes to issues of corporate social responsibility. As a result, CBZ`s low response to corporate social responsibility during the liquidity crisis period could not be statistically attributable to the liquidity crisis itself.

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CONCLUSIONThe findings of the study show that the financial crisis of 2009-2014 period had no significant impact on CBZ bank`s response to corporate social responsibility. This was despite of the exceptional pressure that the bank had to face in the form of constrained ability to fund its working capital, capacity to lend, and few deposits from both individuals and corporate. The bank managed to survive the volatile macro-economic environment, coupled with massive expenditure. However, the bank remained committed to community involvement programs,and also acknowledged the importance of having documented corporate social responsibility policies to be pushed forward even after the crisis, such as organizational governance and environmental policies. In light of the findings from the study, it is concluded that the study accomplished its purpose of assessing the impact of liquidity crisis on CBZ bank`s working capital management and ability to lend during the period 2009-2014. However, statistical data proved that there is no significant relationship between liquidity challenge and CBZ bank`s corporate social responsibility programs. The findings of the study provide insights in an emerging economy like Zimbabwewhere liquidity issues are salient. The researchers recommend further future studies as the current study was limited in terms of scope, to only one bank, the Commercial bank of Zimbabwe (CBZ) bank, and despite the fact that the responses were employees of the bank under study, future research may consider investigating the same phenomena in other banks in Zimbabwe and abroad and subsequently, a larger sample of the participants would enhance more generalizability. Future research alternatively could investigate if the same patterns that actually prevailed in this research study apply to different sectors, such for retail and manufacturing organizations as well.

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