The effect of board independence on liquidity risk management in the Zimbabwean banking sector

Abstract

The current liquidity challenges being experienced in the banking sector and the economy, continue to be an issue of major concern to the Zimbabwean citizens. It is in an effort to try and establish one of the reasons that could be contributing to these challenges that prompted the researcher to investigate the effects of board independence on liquidity risk management in the Zimbabwean banking sector. Literature on board independence and its implication in decision making in the banking sector and other sectors , brought out different views among researchers on the extent to which board independence can influence the kind of decisions made at the highest decision- making body in the banking sector. It is within the believe that such decisions to do with risk management policies are also made. Liquidity risk management policies were also explored. The researcher made of questionnaires and in-depth interviews and desktop research to collect data. This dissertation presents findings from a research covering twenty seven (27) out of thirty (30) respondents, representing a ninety percent (90%) response rate. The findings revealed that Zimbabwean banks are still not observing board independence. Not much has been done by the Central banks to ensure compliance. The findings also revealed that most banks are not compliant with the liquidity risk management policies as stipulated by the Basel committee of bank supervision. For the few banks that are now compliant, the policies and frameworks have not been fully implemented to the rest of the bank employees. The failure of banks to implement such major policies in corporate governance and risk management has weakened the bank positions in managing liquidity. It is therefore the researcher’s recommendations that board independence be viewed from the level of the Reserve bank down to the individual banks. It is the researcher’s believe that a number of incorrect decisions being made at these board rooms can be avoided. There is also urgent need for the implementation of risk management policies bank wide.