GREAT ZIMBABWE UNIVERSITY

FACULTY OF COMMERCE

DEPARTMENT OF BANKING AND FINANCE

EVALUATING THE IMPACT OF LIQUIDITY CRISIS TO COMMERCIAL BANKS

IN ZIMBABWE (A CASE STUDY OF ZB BANK MASHAVA BRANCH)

BY

ALECK MAKANDWA

REG NUMBER: M154434

LECTURER: MR DIZA

This research project was conducted by Aleck Makandwa, studying Banking and Finance at

Great Zimbawe University, as an assignment and general practise in the Course of Research

Methods in Banking, therefore many subtopics are left out because of limited time, funds and

sources for consultation during the study

October 2016

Masvingo, Zimbabwe

ACKNOWLEDGEMENTS

I would like to register my heartfelt appreciation for the guidance and utmost support from

my parents Mr R and Mrs F Makandwa, my brother G Makandwa and the family.

My sincere gratitude also goes to Talent Hove, Coghlan Dube and all my Banking and

Finance colleagues for their assistance

ABSTRACT

Zimbabwe Commercial Banks experience an investor confidence loss during liquidity crises,

making it difficult to raise further cash. If a bank has insufficient cash reserves, it could run

into a vicious circle, where the bank cannot pay its debts because it has no funds, as well as, it

cannot raise funds because its financial difficulties result in its debt´s downgrading. The

paper´s aim is to contribute to the debate on the impact of liquidity crisis in the banking

system. Due to the theoretical character of the problem, the used methodology is a set of

results from research and theoretical works about how the attempts to increase system

solvency could lead into a greater lack of liquidity system. The investigation of the effect of

liquidity crisis is one of the basic viewpoints for banks in Zimbabwe to manage and contend

in the business. The intendment of this exploration work is to audit and investigate the degree

to which banks have been influenced by the 2016 liquidity emergency in Zimbabwe. It is

likewise an order of this exploration to discover if liquidity emergency really impacts the

execution of banks over the study timeframe. In synopsis, Chapter 1 weights on the

presentation, it similarly manages the foundation of study proclamation of issues, research

inquiries, criticalness and speculation to test. In chapter 2, the writing audit was highlighted.

Also in Chapter 3 manages the exploration plan, essential and auxiliary information and

Chapter 4, focused on the presentation of information and examination lastly Chapter 5

complement the condition with the above methodology.

TABLE OF CONTENTS

Title page

CHAPTER ONE…………………………………………………………………………1

1.0 INTRODUCTION.......................................................................................................1

1.1 Background of the study…………………………………………………………..1

1.2 Statement of Problems…………………………………………………………….2

1.3 Objective of the study…………………………………………………………......2

1.4 Statement of Hypothesis…………………………………………………………..2

1.5 Significance of the Study………………………………………………………….3

1.6 Limitation of the Study……………………………………………………………3

1.7 Research questions………………………………………………………………...3

1.8 Definition of terms………………………………………………………………...3

CHAPTER TWO………………………………………………………………………. 4

2.0 REVIEW OF LITERATURE……………………………………………………….4

2.1 Introduction………………………………………………………………………..4

2.2 Taxonomy of literature review……………………….............................................5

2.3 The History and causes of liquidity crisis in Zimbabwe…………………………..5

2.4 Impact of liquidity crisis to ZB Bank Mashava Branch…………………………...5

2.5 Relevant models or issues to Liquidity crisis……………………………………...6

2.6 Summary of the chapter…………………………………………………………...7

2.7 References…………………………………………………………………………7

CHAPTER THREE………………………………………………………………………8

3.0 RESEARCH METHODOLOGY……………………………………………………8

3.1 Introduction…………………………………………………………………………9

3.2 Research design …………………………………………………………………….9

3.3 Population of the study………………………………………………………...…...10

3.4 Area of study/coverage ………………………………………………………..…...10

3.5 Sources of data ……………………………………………………………………..11

3.6 Method and techniques of data……………………………………………………..11

3.7 Decision Rule……………………………………………………………………….12

CHAPTER FOUR………………………………………………………………………...12

4.0 PRESENTATION AND ANALYSIS OF DATA…………………………………..12.

4.1 Data presentation…………………………………………………………………….12

4.2 Data analysis and interpretation……………………………………………………..13

CHAPTER FIVE……………………………………………………………………………13

5.0 DISCUSSION OF FINDINGS CONCLUSION AND RECOMMENDATIONS…...13

5.1 Summary ……………………………………………………………………………….13

5.2 Conclusion………………………………………………...……………………………14

5.3 Recommendations………………………………………………………………………14

5.4 Suggestion for further readings…………………………………………………………15

Bibliography……………………………………………………………………………15

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF STUDY

THE Zimbabwean economy is currently experiencing a liquidity crisis which has

been a problem for quite some time. Banks feel the effects of the liquidity squeeze

directly while other productive sectors in the economy perceive it indirectly. There

are questions that arise because of the liquidity crunch. What is liquidity? What are

the causes of the liquidity crunch in Zimbabwe? What are the main effects of the

liquidity crisis? How can the effects of the liquidity crunch be alleviated?

The execution of Zimbabwe Banking part was occupied into desperate condition by

the nation's present liquidity crisis position. The crisis which began around December

2015 off drove the Banking business to slide into profundity of traumatic entrail of

retreat which diminishes Bank customer's certainty. With lessening funds, it is

troublesome for a bank to take care of day by day money demand from contributors

and to satisfy the requirements of its customers. Makoshori (2016) conceptualize that

investors escape from banks and wander into casual funds bunches or informal

savings groups, known as Mukando or MaGroup because of a disintegration of trust

in the managing an account industry, lines and day by day normal withdrawal confine.

This exploration concentrate additionally unearths the present elements of Banking

Industry as takes after:

• The greatest withdrawal confine in the bank every day is $300 every day

• The Minimum is $20 every day

• The normal withdrawal breaking point is $100 every day

• Depositors are making every day withdrawals and were charged $5 per

exchange before the RBZ looked into monetary charges. Presently it is $2.50.

• RTGS pulled in a charge of $10 per exchange before the RBZ decreased it

relying upon the estimation of the exchange.

• RTGS to outside records have been confined

• Internal RTGS are constrained.

• Some banks regularly come up short on money

• Bank lines are the request of the day

• Premiums of between 10-25% are presently charged for money at the parallel

market which is raising its monstrous head once more.

• There is frenzy available with separated deficiencies of fuel and some

fundamental products, for example, sugar and cooking oil. Indeed strange fuel lines

are framing at some administration stations.

• People and organizations are defaulting on instalment commitments and

suppliers no more give credit terms. This will encourage harm banks' advance books.

1.2 PROBLEM STATEMENT

The liquidity crisis which offers ascend to the disappointment of numerous banks has brought

the respectability of the saving money division to a steady core interest. The emergency has

suggested respectability conversation starter as well as has enormously lessened the certainty,

which is the best resource of the bank. The researcher plans to think about and look at the

effect of trade emergency out Zimbabwe Financial framework and to make proper proposal

for ideal execution.

The reason is not only one of the truths that a few banks are battling however there are

different issues connected with them that the analyst tries to address, these issues include

- the loss of public trust in the managing an account industry because of the emergency in the

segment (Aleck 2000).

- How the liquidity emergency added to banks predicament.

There are various issues that have emerged and which constitute emergency in the keeping

money industry of Zimbabwe and this work will endeavour to settle them.

1.3 OBJECTIVE OF THE STUDY

The target of this study is to make some sensibly examinations and, then discover a few

realities paltering to the rate of Liquidity emergency and its level of presence in Zimbabwe.

Henceforth, the exploration work will go similarly as following the foundation of the issue,

continually expanding the rate of liquidity crisis.

(a) To decide the impact of liquidity crisis on banks of Zimbabwe

(b) To discover the endeavours and contributions of over a wide span of time legislature of

Zimbabwe leased to tackle the issue of liquidity crisis

(c) To uncover the react of banks and its customers to liquidity emergency problem

(d) To look at the factual use of the study, that will upgrade the observational discoveries of

the impacts of Liquidity emergency to banks.

(e) To decide a reasonable arrangement toward changing and reducing the issue of Liquidity

emergency to Banks in Zimbabwe.

1.4 STATEMENT OF HYPOTHESIS

This segment would outline some speculation of this examination project.

Ho: there is no critical relationship between liquidity crisis and benefit, stores and credits of

Banks in Zimbabwe.

Hi: Liquidity crisis has an impact on the benefit and operation of Banks in Zimbabwe.

Where Ho: Null hypothesis.

Hi: Alternative Hypothesis

1.5 SIGNIFICANCE OF THE STUDY

The researcher would like to accomplish a great thing toward the end of the study. This

research will help many that are keen on the Banking industry, it will likewise help them to

do the reasons for crisis, and how it can be an immense advantage to the following

individuals.

1. Students in the field of Banking and Finance

2. Bank: It is of awesome advantage to banks when they see that Liquidity crisis is a danger

to its operation so it can discover strategies to alleviate the money crisis. 3.

Future Researchers: It will serve as a buddy to future analysts who are intrigued on the effect

of liquidity emergency to business banks and conceivable remedies.

4. Investor. It will assist them to know the impact of Liquidity emergency with banking by so

doing they will be mindful so as not to put resources into banks if there is money crisis.

5. It will likewise edify to the public on how liquidity crisis has cause a considerable number

of problems in our economy.

1.6 LIMITATION OF THE STUDY

In leading research work of this nature, certain limitations will undoubtedly influence the

study. These incorporate the accompanying: cash, time and effort.

Money being a rare item, an understudy won't have enough cash excessively get together the

each of the three monetary commitments by making a trip to numerous association which is a

pre-essential for an exploration extend. As an aftereffect of this imperfection, this study will

focus on the effect of liquidity crisis on the execution of store of business banks in Zimbabwe

with reference to ZB bank Mashava Branch.

A research of this nature cannot be refined inside a brief timeframe. It requires time on the off

chance that one really needs to compose thoroughly on the topic.

Also a few representatives of the bank where different inquiries were asked declined

enthusiasm as an endeavour to convince them because of their own timetable being a

constraint to this project.

1.7 DEFINITION OF TERMS

LIQUIDITY CRISIS: is a deficiency of money and other promptly accessible assets to

address monetary issues.

INFORMAL SAVING GROUPS (MUKANDO OR MAGROUP): a social association

framed to help group individuals spare cash for particular purposes (either individual or

group level).

BANK: is a financial organization authorized to get deposits and make credits. Banks may

likewise give monetary administrations, for example, wealth administration, cash trade and

safe deposit boxes.

RTGS: are pro supports exchange frameworks where the exchange of cash or securities with

one bank then onto the next on a "constant" and on a "gross" premise

DEPOSITOR: any individual who keeps cash in a bank balance.

INVESTOR: any individual who dispenses capital with the desire of a future monetary

return.

HYPOTHESIS: is a supposition or proposed clarification made on the premise of constrained

proof as a beginning stage for further examination.

LENDING RATE: this is a rate at which Banks make progress to their clients.

CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction

In the previous chapter, the scene for the research was set. This chapter examines available

relevant literature by earlier researchers on the effect of liquidity crisis in the Banking Sector.

According to Sharp et al (2002) two major reasons for reviewing the literature are that the

preliminary search helps to generate and refine research ideas and it demonstrates good

knowledge of research area. The benefits include assisting the reader to understand more

about the problem and to make research with other research studies.

A lot has been written about the liquidity crisis in Zimbabwe with different approaches on the

subject. This chapter will give an insight into empirical research and theoretical information

2.2 Taxonomy of literature review

Educational Resources Information Center (1982) defines a literature review as an

“information analysis and synthesis, focusing on findings and not simply bibliographic

citations, summarizing the substance of the literature and drawing conclusions from it”

.According to Cooper (1988) literature review can be classified according to types of

literature review focus, goal, perspective, coverage, organization, and audience. The first

characteristic is the focus of the review. Cooper (1988) identifies four potential foci: research

outcomes, research methods, theories, or practices or applications. Literature reviews that

focus on research outcomes are perhaps the most common. pertaining the causes, effects,

history of liquidity crisis and recommendations to cushion the problem.

2.3 History and Causes of Liquidity crisis in Zimbabwe

The Zimbabwe financial system which is in the valley of death currently since the 2008 and

2009 hyperinflation pose pressure to Commercial Banks since depositors’ daily withdrawal

increases due to increase in cash crisis in the country. Researchers such as Mpofu, and

Marwei (2015) states that “ Zimbabwe’s financial system was better yesterday than to date,

the introduction of Multi-currency system was at first a yield and central option since the

general public, investors and many commerce participants were afraid about the return of the

Zim-dollar, However this adopted system limited the Zimbabwe government to reproduce the

adopted currency in form of Seigniorage since the Reserve Bank of Zimbabwe (RBZ) do not

have the right to print the currency. This means therefore that all the money which might be

lost during circulation eg radiated money, lost money etc cannot be easily recovered without

foreign trade. Gowans(2016) highlighted that Zimbabwe’s fragile economic situation is

lurching towards fresh depths amid indications that small United States dollar denominations

are disappearing from circulation, thereby raising the possibility of a change crisis. The

development has triggered speculation of a conspiracy to mop up the small denomination US

dollar notes to pave way for the planned introduction of bond notes of similar denominations

by the Reserve Bank of Zimbabwe (RBZ) at the end of next month.

Despite widespread resistance against the proposed introduction of bond notes, government is

proceeding with the introduction of the domestic currency which, it insists, is a surrogate of

the US dollar -- the major currency under Zimbabwe's multiple currency regime. Currently

many financial institutions such as Microfinance institutions, Banks, Ecocashs, Mukuru,

Western Union and many more are struggling to “healthy” in the economy of Zimbabwe.

Guvamatanga(2016) conceptualize that Zimbabwe Liquidity crisis is primarily caused by

excessive spending on imports therefore creating unsustainable economic environment.

According to data released by Zimbabwe National Statistics Agency (ZNSU) shows that

Zimbabwe posted a $3 billion trade deficit from January to November 2015. Trade figures

showed that exports amounted to $2.5 billion against $5.5 billion in imports, indicating the

country’s continued reliance on foreign goods as the local industry remains depressed.

Speaking at ZB bank annual General Meeting, Mr Mukore said the decline in local

production has resulted in Zimbabwe depending on imports, “Spending on imports is causing

the cash crisis. We are just a nation consuming more than what we are producing hence

controls are needed to mitigate the crisis and ease pressure on Banking sector, also we are

using the money which is not ours, there is an anomaly, the previous $3500 maximum cash

withdrawal is something as a country cannot sustain and that limit was for other people

taking money out of the country, making the control system necessary.”.

Zvareva (2015) also posits that ZIMBABWE’S unsustainable trade or current account

deficit, poor balance-of-payment position as well as massive revenue leakages, corruption

and an uneven distribution of liquidity in the market are the major reasons behind the

prevailing serious cash shortages buffeting the economy. Apart from that, James (2014)

outlines that another contributing cause to the current liquidity crisis in Zimbabwe is the

economic policy of Zimbabwe, the indigenisation policy, which hinders Foreign Direct

Investment (FDI) which emerge countries and promotes HOT MONEY that is the flow of

cash from one country to another through investment. Mashakada (2016) also underline that

Public Borrowing also cause liquidity crisis in Zimbabwe. Government has been issuing

Treasury Bills amounting to $2 billion dollars. The problem is that all the TBs were rolled

over upon maturity. This seriously affected banks’ cash flows. In fact some banks were

driven to the brink of collapse by the purchase of TBs. He further argued that Poor revenue

performance also contributed to the current cash crisis in Zimbabwe. This is so because

ZIMRA revenue collections are dwindling every month because companies are closing.

Growth is plummeting and there is a general slump in production. The economy has negative

Savings.

Ian Ndlovu (2016) a lecturer at National University of Science and Technology also point out

that liquidity problems have been worsened by the systemic risk and weak corporate

governance structures and systems in the banking sector which have led to the collapse of a

number of banks in the 2000s, that is, from 2002 to 2013. Most potential depositors just like

any economic agent use past experience or history to make future decisions. According to

conservative estimates more than $1 billion is circulating outside formal banking channels

implying that the informal sector which employs many so-called unemployed is actually

more liquid than the formal sector. There is visual evidence which attests to the fact that the

informal sector is very liquid.

2.4 Impact of Liquidity crisis to Banks ( ZB Bank Mashava Branch)

During an interview with Daniel Chimenyi (A ZB Bank Mashava front office desk

representative) he conceptualise that, “the international financial system is designed in a way

that Tier1 and Tier2 banks which are mainly your foreign-owned banks, benefit from the

export receipts. In other words, export earnings favour stronger financial intermediaries

meaning that POSB, ZB Bank and AgriBank do not benefit much and this would obviously

affect their liquidity situation.” He also further on argued that the main target of ZB Bank in

Mashava is the Great Zimbabwe University students however the market is deteriorating to

fade because students are now preferring other form of transaction when buying goods and

meals such as the use of merchant codes, direct mobile cash transfer, informal saving groups

etc because the Bank do not have enough cash to settle the demand. Moreover, in an

encounter with part 2:2 students studying Banking and Finance on Wednesday 12 October,

many promontory points has been raised concerning the ZB Bank in Mashava. They have

postulated that it is difficult nowadays for us as students to deal with banks because they do

not provide cash on demand. Also they provide millipede daily services which result in

queues and chaos therefore it is wise for us to choose other forms of cash keeping which are

liquid rather than Banks.

It is beyond any reasonable doubt that Zimbabwean citizens are now venturing into small

saving groups called Mukanda or Magroup where individuals help each other to raise funds

for a certain commodities where everyone is a banker to another, these saving groups were

created to reduce burden and disappointments from the millipede services offered by the

Banks since they provide daily minimum requirement which is not favourable. Banks

introduced this system in order to cater a prolific rise of cash demand by the depositors since

their confidence is deteriorating to fade every second passing by.

2.4 Relevant models or Issues to do with the Liquidity Crisis.

Much of the current crisis can be traced to models that failed to adequately reflect risk, both

in adopted Multicurrency system, introducing Bond coins and complex financial instruments.

Even if historical financial system data had never recorded changes like those realized

recently, data from other bubbles, from tulip bulbs on, could have been used. It was not clear

that financial system was in a bubble, but bubble scenarios should have been in the models.

Those model issues need to be, and are being, addressed, but here the focus is on liquidity

Crisis of Zimbabwe. Regardless of the underlying causes, liquidity problems can be

magnified by market price disruptions, and these effects should be included in risk models.

Such modelling needs to postulate a mechanism. Morris and Shin (2004) model “liquidity

black holes” as arising from price movements and common trading strategies of short-term

investors: “liquidity black holes have the feature that they seem to gather momentum from

the endogenous responses of the market participants themselves. Rather like a tropical storm,

they appear to gather more energy as they develop. Part of the explanation for the

endogenous feedback mechanism lies in the idea that the incentives facing traders undergo

changes when prices change. Market distress can feed on itself. When asset prices fall, some

traders may get close to their loss limits and are induced to sell. But this selling pressure sets

off further downward pressure on asset prices, which induces a further round of selling, and

so on. Portfolio insurance based on dynamic hedging rules is perhaps the best known

example of such feedback.”

Modeling liquidity risk can start with stress tests. The current market is one example of a

stress scenario. A convergence of adverse asset, liability and credit availability situations can

be postulated and the cash flows projected along with the value changes. Probabilistic

scenario generation requires assigning probabilities to the stress scenarios and including them

in a larger simulation. Having a model that predicts occasional market dislocations, such as

Morris and Shin’s, can help incorporate liquidity events in the scenarios. Certainly there is an

interaction between price movements and liquidity movements that can be taken into account.

Such modeling can quantify the impact of liquidity risk on capital adequacy. Part of the

problem is recognizing off-balance-sheet cash needs that can arise in a market disruption,

such as collateral requirements, embedded options, refunds due to ratings down-grades, etc.

This also emphasizes the utility of dynamic ERM models— models that include response

strategies to various events. Dynamic ERM models can also benefit from the framework of

timeline simulation, where events are simulated in order of occurrence and time stamped (see

Kreps, 2009). What is now important in models is to have scenarios and responses take into

account the possibility that other players are following the same strategies; liquid assets may

become illiquid; off-balance-sheet commitments might be triggered, etc. Models for these

possibilities and the interaction of price and liquidity are appearing in published theory, but

nailing down reasonable probabilities for liquidity and corresponding pricing events could be

an area of research for some time to come.

2.5 Summary of the chapter

This chapter discussed what previous researches proposed and propounded on the study area

of the liquidity crisis in Banking sector of Zimbabwe. Key areas of improvement in the bank

and the possible reasons were identified. The literature revealed the various models to do

with liquidity crisis. (Heggde and Panikar, 2011).Various Liquidity models and strategies

were discussed leading to the crafting of the theoretic framework which guides the research

study. The majority of the research is based mainly on the impact of the crisis to ZB BANK

representing other banks in the Banking industry. This research will help in creating tailor

made turnaround strategies in the commercial banks from a Zimbabwean perspective. The

next chapter will concentrate on the research methodology backed up by academic ancestors

on research methods, and discussion on how the data and information is gathered and the

relevant justifications given

REFERENCES

Guvamatanga, G (2016) The impact of Liquidity crisis to the Economy of Zimbabwe.

Midlands State University, Gweru.

Gowans J (2016) An Introduction to cash crisis in Zimbabwe. McGraw Hill, New York.

James, O (2015) Contributions to Zimbabwe Liquidity Emergence in 2016. Kingston Printers,

Pretoria.

Mashakada,V (2016) Causes of Liquidity Crisis in Zimbabwe. Mambo Express, Harare

Mpofu, F and Marwei, L (2015) Zimbabwe’s economic situation during and after the

hyperinflation. Longman, Harare.

Mukore,S (2016) Effects of Multi-Currency system to Indigenous Banks in Zimbabwe, A Case

study of ZB Bank. Mambo Express, Harare.

Ndlovu, I (2016) Problems of Liquidity crisis to the economy of Zimbabwe, National

University of Science and Technology, Bulawayo.

Zvareva, K (2014) Primary Causes of Cash Crisis in Zimbabwe. Longman, Harare.

CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Introduction

This chapter provides an insight into the methodology adopted in the collection, analysis and

interpretation of the data for the study. It attempts to provide a detailed analysis of the

research plan and tools utilized in the actualization of this study. It will also give details of

the research population and sample. Data collection methods used in the study as well as the

techniques employed in collecting each type of data will be outlined. The chapter will also

focus on the data validation, evaluation of the reliability of the data and a data presentation

and analysis plan

3.2 Research Design.

The descriptive survey method has been adopted for the purpose of this study. This type of

research design was chosen as it enables the assessment and analysis of certain behaviour and

information. The primary objective of the study is to evaluate the impact of Liquidity crisis to

commercial banks in ZImbabwe. Therefore, the adoption of this survey method is important

to ensure a detailed account of the factors contributing to financial chaos liquidity crisis in the

country. Although this method takes a lot of time, frequently cost and depends a great deal on

the willingness, honest and ability of the respondents. With a descriptive research design the

researcher cold reveal data and perform analysis and assessment that often lie on the blind

side of liquidity crisis formulation. The research design was also chosen as it aids enhancing

a deeper understanding of phenomena and deemed to produce a strong descriptive result.

3.3 Research Population

The study population is made up of the Reserve Bank of Zimbabwe (RBZ) which is the one

responsible for making monetary and fiscal policy decisions. It also includes commercial

banks which are affected with the Policies implemented on their activities. The respondents

include the head regulatory and supervision department, ZB bank Mashava Branch workers,

Great Zimbabwe Univesity Mashava Students and Lecturers, Mashava Villagers. These

respondents will proved the researcher with the right information to answer the research

questions.

3.4 Research Sample

The researcher used stratified random sampling method, by using questionnaires and also

conducting personal interviews from the entire population. The stratified random sampling of

respondents was carried out from the strata’s, thus 5 RBZ staff members, 20 commercial

bank’s employees randomly selected from 16 commercial banks, 14 Great Zimbabwe

Univesity Students at Mashava Campus, 4 Lectures and 7 Mashava Villagers who are clients

to ZB Bank to makeup a total sample size of 50 respondents. This was done considering the

structural design of the Zimbabwean banking sector and the specific banking activities that

the sector encountered within the research period.

The advantages are the ability to capture key population characteristics, it often requires a

smaller sample which gives a greater precision, hence minimising costs, and mainly it

ensures that particular groups in a population are adequately represented in the sample and

improves efficiency by gaining greater control on the composition of the sample.

Table 3.1 Research Sample

Respondents Description Weight of Respondents

Commercial bank staffs 20 40%

RBZ representatives 5 10%

GZU students 14 28%

GZU lecturers 4 8%

Mashava Villagers 7 14%

Total 50 100

Source: Raw data

3.5 Data Collection Methods and Instruments

To ensure reliability and relevance of the information resulting from the research and also for

in-depth knowledge about the subject matter, the researcher employed qualitative and

quantitative approaches which were derived from primary and secondary sources.

3.5.1 Primary Data

One of the main advantages of collecting primary data is the greater amount of control that

the researcher have in determining the methods used, and time period to collect the data. This

enables the researcher to focus on specific aspects of the research. In addition, by using

primary data the researcher is most likely to collect original, upto date and unbiased data. The

main disadvantage of primary data is that it consumes a lot of time, hence the researcher have

to manage time effectively.

3.5.1.1 Questionnaires

The questionnaire were composed of both structured questions which were simple and

relatively easy to administer and unstructured questions, which assessed the views of the

respondents without guiding them. Carefully chosen questions were enlisted to aid

respondents to answer only questions which were related to the topic under study.The

researcher prepared 16 questions, which is definitely not a small number. The questions seek

to dig deeply into the practices inside the bank and were very flexible. Respondents were

people who were busy, thus giving them questionnaires gave them sufficient time to respond

to questions hence giving accurate answers and deliver well thought answers

3.5.1.2 Interviews

The researcher conducted interviews to reinforce the questionnaires disbursed and also gather

other data. Two types of interviews were used which are telephone and personal interviews.

The interviews brought about information regarding individual experiences, knowledge and

opinions an in-depth or face-to-face interview was conducted on one to one basis to reveal

the underlying motives of the interviewee's attitudes, behaviour, and perceptions and allowed

much interaction between the interviewer and interviewee .Interviews were important

because they allowed the researcher to get an in-depth knowledge on the subject as contrasted

to questionnaires and they allowed the respondents to help the researcher in areas where they

had total knowledge.

3.5.2 Secondary Data

Secondary data is data that have been already collected by and readily available from other

sources. Secondary data helps to make primary data more specific and improves the

understanding of the problem. It also provides a basis for comparison for the data that is 26

collected by the researcher. However, it is very difficult to align secondary data to the current

research problem. For the purpose of this study secondary data was sourced from the banks’

financial and nonfinancial performance data sent to the RBZ quarterly, the published

financial statements, banks' annual reports, RBZ’s monetary policy statements and other

financial journal. It was necessary to use the secondary data because already existing data is

efficient and less costly to use. In addition, secondary data allowed the researcher to foster an

extension of the scope of data analysis thereby improve the quality of findings.

3.3 Summary

The chapter is a layout of the research methods that the researcher employed for the purpose

of this study. This chapter defines the research design used as descriptive research design. It

also gave an insight into the research population, research sample and data collection

methods. The research population is characterised by commercial banks, depositors of the

banks and the Reserve Bank of Zimbabwe. This is because the research is mainly focused on

evaluating the impact of Liquidity crisis on the activities of commercial banks. Data

collection methods take the form of primary and secondary research with the RBZ

publications constituting much of secondary research. Finally data validation. This will be

done before moving on to the next chapter which will diagrammatically present and analyse

data from research findings.

CHAPTER FOUR

PRESENTATION AND ANALYSIS OF DATA

4.1Introduction

This chapter involves the presentation and analysis of data gathered from the questionnaires

which were administered on the sample selected. For the analysis, tables, bar charts, pie

charts and simple percentage will be used to present data while the test of hypothesis shall be

carried out using chi-square (X2) statistics. The statistical tool adopted was opted for because

it allows for effective understanding and interpretation of results. Furthermore, in order to

reduce the bulkiness of data, the data presented and analysed are those that are considered

relevant to the problems, Objectives and hypotheses of this research work

4.2 An Analysis of the Response rate

A summary of how questionnaires were distributed and the response rate in give in table 4.1

below

Administered Retuned/completed Response rate

Commercial bank staffs 20 14 70%

RBZ representatives 5 2 40%

GZU students 14 14 100%

GZU lecturers 4 4 100%

Mashava Villagers 7 6 85%

Total 50 40 80%

Source: Raw data

From table above, it can be seen that a total of 20 questionnaires we administered to

commercial banks staff but only 14 (70%) was completed and returned, 5 questionnaires was

administered to RBZ but only 2 (40%) was completed and returned, 14 questionnaires to

GZU student and all (100%) were answered, also 4 administered to GZU Lectures and all

(100%) were answered and finally 7 questionnaires administered to Mashava Villagers but

only 6 (85%) were completed and returned. In total of 50 questionnaires which were

administered a total 40 (80%) was completed and returned. This shows that the total

responses were significant to investigate on the effects of regulations and supervision on the

activities of commercial banks

4.2 Awareness of the Liquidity crisis in Zimbabwe

In order to evaluate the impact of Liquidity crisis on commercial banks, through assessing if

the depositors are aware of the Liquidity crisis on the activities of commercial banks, the

degree of respondents’ opinion was sought using a two-point.

Response Number of Response Percentage

YES 39 81%

NO 9 19%

TOTAL 48 100%

Source: Raw data

In relation to whether investors are aware of the impact of liquidity crisis on the activities of

commercial banks, table 4.2 show that 39 (81%) of the Dipositors are aware and 9 (19%) of

the depositors are not aware. This implies that most of the depositors are aware of the impact

of the liquidity crisis on the activities of commercial banks

4.3 Summary of the Chapter

Overall, research findings on the effects of Liquidity crisis above clearly confirmed that

commercial banks are heavily affected by the liquidity crisis which is rocking in Zimbabwe

currently. The next chapter summarizes the research findings and gives conclusion and

recommendations on the research topic of the effects of regulation and supervision on the

activities of commercial banks

CHAPTER FOUR

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Introduction

In this chapter, the researcher will provide a summary of the study and make conclusions on

the results obtained for each research objectives. The research will also include a brief

comparative narration of the conclusions that were reached by other authors.

Recommendations and suggestions for future research will also be provided in this chapter

5.2 Summary of the Study

The primary objective of this study was to evaluate the impact of liquidity crisis on the

activities of commercial banks. Different authors and scholars on the field of study reviewed

suggested theories that were given by the researcher. Observations and statements renowned

authorities and legends on the subject also found their way in the review. This was provided

as literature review to support the study. The research used descriptive research design to

achieve this objective as well as the secondary objectives. In the study the research used a

population of 16 commercial banks, depositors and the RBZ, from which a sample of 20

commercial banks staff, 25 depositors and 5 RBZ staff was drawn. The sample was drawn

using the stratified random sampling technique. From the findings it was observed that

Liquidity crisis has a negative effect mostly on bank lending and it reduce public confidence

in the banking sector. The researcher also found that most of the depositors are aware of the

regulations on the activities of commercial banks.

5.3 Conclusion

From the investigation carried out by the researcher, the study draws the following

conclusions:

• The Reserve Bank of Zimbabwe’s loss of the lender of last resort function since

dollarization has posed difficulties in the operations of banks especially with regards to

liquidity challenges, leading to reduction in profit levels • Capital adequacy and asset quality

were found to be major causes of bank failures in Zimbabwe.

• The Liquidity crisis in Zimbabwe distress the performance of commercial banks.

• Depositors’ confidence in the banking system reduced because the industry offer millipede

serves as a fruit of Queues and chaos.

• Effective bank supervision is important in protecting depositors' funds and avoiding Bank

runs through proper management of the available funds to maintain the reputation of the bank

5.4Recommendations

In order for commercial banks and the RBZ to reduce liquidity crisis and achieve stability in

the financial sector. The following recommendations may be put in place.

Increasing the supply of the United States Dollar.

This can be achieved by looking at all the sources of foreign currency. The solution is

therefore to open up the economy and increase the injection or supply of more United

States dollars into the Zimbabwean economy. This is where the policy matrices of

Zimbabwe have to change in order to attract FDI and fresh capital. The researcher

concluded that the Indigenisation policy negatively affect the country since it hinders and

restricts Foreign Direct Investment which emerge economies and create HOT MONEY

that is the flow of cash from one country to another by investment. Without any

prevarication or ambiguity, the Indigenisation policy must be the very first policy to be

dealt on. It is one of the huge elephants in the living room. As a matter of emphasis, the

main obstacle is the toxic confidence crisis which requires a political solution. Inclusivity

and national dialogue, more than farcical elections, can resolve the confidence crisis.

Restoring international relations in order to get official development assistance

(ODA)-bilateral.

Resolving the debt trap through the HIPC system in order to get multi-lateral

balance of payments support.

Nostro accounts

In order to meet the requirements of depositors, banks may recall funds from their off-

shore accounts (nostro accounts). These funds are normally reserved for foreign

payments. For some time now, banks have been bridging their balance sheets from

nostro accounts and most nostro accounts have been depleted. Banks can no longer

resort to that facility.

Implement programs and ways which create public confidence to the RBZ

It is beyond any reasonable doubt that people of Zimbabwe do not have confidence

about the Reserve bank of Zimbabwe because of memories of 2008 and the

hyperinflationary Zim- dollar period are still fresh in the minds of the people.

Therefore the government must seek to boost confidence among its citizens so that

they comply with the implemented policies. For example the Reserve Bank announce

the introduction of Bond notes to cater the current liquidity crisis or to reintroduce the

Zimbabwe dollar the public will agree, acquiesce and adapt in accordance with the

implemented policies.

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