An Assessment of Zimbabwean Merchant Banks Conformity to International Best practices in risk management

Abstract

A study on the assessment of Zimbabwean Merchant banks conformity to international best practices in risk management was driven by the new trend in the form of the globalization of financial markets and the recent move by Zimbabwean financial institutions to expand regionally. The specific risk management practices which were considered include, risk capital determination approaches, risk infrastructure and stress-testing practices. A survey research design was used to carry out the research through use of questionnaires and interviews; additionally the Basic Indicator approach was used to quantitatively assess the adequacy of the risk capital. The main objective of the research was to check if Zimbabwean Merchant bank practices are in conformity with international best practices in risk management, covering the above mentioned areas. There is a lack of momentum towards Basel II implementation despite calls by the Central Bank since 2006. Risk management infrastructure of Merchant Banks in the form of operational and credit risk technology lacks capabilities recommended by the BIS ,operational risk capital set-aside by Merchant banks is insufficient to cover operational risk, less benefits are being derived from risk management investments and this retard their desire by banks to conform to international best practices in risk management, majority of banks’ ORM practices are placed between foundation and intermediate stage of capco framework, whereas CRM practices are placed on the intermediate stage, stress testing approach on credit risk is disastrous considering the integrated nature of risk exposures. Basel II implementation challenges were identified and their magnitude explains non-conformity to international best practices in risk management.