Liquidity Crisis and its Influence on the Performance of FBC Bank Limited Zimbabwe

Abstract

The liquidity crisis has been a problem in the Zimbabwean economy, which has led to banks and financial institutions collapsing. Banks in the country have felt the effects of the liquidity squeeze directly while other productive sectors in the economy have perceived it indirectly. This research sought to identify the key determinants of liquidity crisis and how they influence performance of FBC Bank (Pvt) Limited. The study employed an exploratory research design. Data was gathered through the use of self-completion questionnaires and in-depth interviews with key informants. Documentary literature was reviewed, which was collaborated with the research findings highlighting the level of generalizability of the data. The study identified lack of depositor’s confidence, externalization of funds, dampened exports, lack of lender of last resort and country risk as the key determinants of the liquidity crisis. Loss of confidence by depositors in the banking system gives rise to the public holding their money and externalising funds to offshore destinations reducing the liquidity of the financial sector. With lessening funds in the financial sector, 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. The study recommends that the government, through the Ministry of Finance and Economic Development and the Reserve Bank of Zimbabwe, come up with policies and statutory instruments that govern issues of externalisation of foreign currency. Regulations and laws that govern cash hoarding to reduce depositor’s confidence must be improved by having a consistent and concrete monetary policy based on stable currency. FBC bank should exercise due diligence particularly with regards to long term lending decisions. The bank must adopt selective lending and reducing loan amounts given to customers. This will help the bank address liquidity challenges such as increased loan delinquencies it is currently facing. The bank must also put measures such as individual bank restructuring to unlock nonperforming loans.