Determinants of Bank Failures in Multiple-Currency Regime in Zimbabwe (2009–2012)

Abstract

Upsurge in bank failure cases under a more stable currency environment are rare, but the Zimbabwean case raised a lot of questions, which justified the need to deeply investigate sources of bank failures. This is considered an imperative move considering the impact that bank failures pose to stakeholders outside the banking sector such as investors and depositors, the Zimbabwean banking sector itself as well as the entire economy. This study investigated the determinants of bank failures in Zimbabwe under the multicurrency environment. The study employed pooled logit estimator using general to specific logit estimation procedure on fourteen banks by making use of 2009-2012 panel data. Empirical findings indicated that the macroeconomic environment, in particular GDP growth rate, has much influence on bank failure than any other bank fundamental. Among bank fundamentals, liquidity, profitability and capitalisation proved to be prominent bank related determinants of bank failures in their respective order. Findings also suggest that loan-to-deposits ratio (LTD), deposits-to-assets ratio (DTA), gross revenue ratio (GRR), return on assets (ROA), efficiency ratio (EFR), SIZE and GDP growth rate (GDP) variables are negatively correlated to the possibility of banks failing while loan-to-assets (LTA) have positive influence on bank failures. Based on these findings the researcher recommends that RBZ must accentuate liquidity and capital requirements since both liquidity and capital ratios were significant and had higher marginal effects.

The Impact of the Collapsed Banks on Customers in Ghana

“…However, he opined there is a significant relationship between those collapse banks and their profit, total loans, return on capital and total capital. Alhassan et al [29] found in their study that the quality of the bank's assets was largely dependent on the performance of their loans with declining Non Performing Loans (NPLs), the size of the loans, and the market size, the exchange rate and GDP growth of that country. Haven reviewed much literature Alhassan et al [29] concluded that insufficient research on the determinant of banks' assets quality is done in developing countries.…”

“…Alhassan et al, [29], focusing on specific components of banks in Ghana, consider the show to be diverse. The bank is protected by relevant variables to non-regulatory elements that come from the point of view of the workers' explanations for bank closures in Ghana.…”

Domestic and Foreign Banks' Stability in Indonesia: the Grey Zone Trap and Key Determinants

“…Z=6.56 X1 + 3.26 X2 + 6.72 X3 + 1.05 X4 Regression and Error Correction Model Most established approaches are more appropriate to measure the bank soundness of the banking industry in developed rather than in developing countries [11]. Hence, the author chooses the aggregate research method tabulation that complements the Indonesian banking industry, referenced by Bank Indonesia [12] and Canicio and Blessing [22]. The variables used almost cover CAMELS indicators and exclude the variable measuring sensitivity to market risk.…”

“…The author then applied regression analysis of micro-prudential and macroeconomics indicators, such as GDP, inflation, and exchange rate return, to evaluate the determinants. Combining Bank Indonesia's micro-prudential and macroeconomic indicators with references from Canicio and Blessing [22], the author indicates some observable variables to portray the determinants of bank stability in Indonesia seen in Table 3. Measures the effectiveness of the bank in utilizing its assets and liabilities.…”

“…Source: Canicio, D. and Blessing, K., [22] The observable variables are then implemented into the ADF test. The result from the ADF test and regression analysis in Table 4 show that all variables have a unit root, and their stationary level lay at first difference.…”