Zimpapers Logo

Talent Dube
There is a strong relationship between corporate governance and financial stability hence the government should pay close attention to this aspect. The primary objective of the current monetary policy in Zimbabwe is enhancing financial stability to promote business confidence. In broad terms, financial stability means the joint stability of the key financial institutions and the financial markets in which they operate. Therefore, financial stability would be evidenced by effective corporate governance, thus a sound regulatory infrastructure including the laws, regulations, standards and practices that constitute a robust financial regulatory environment and an efficient process of macro prudential surveillance.

Effective corporate governance practices are essential to achieving and maintaining public trust and confidence in the banking system, which is critical to the proper functioning of the banking sector and the economy as a whole. Poor corporate governance may contribute to bank failures, which in turn can pose significant costs on the treasury and can have other macro-economic effects like contagion risks. Additionally, poor corporate governance can lead to the loss of financial market confidence in the bank’s ability to properly manage their assets and liabilities. Therefore, without good corporate governance within the financial institutions the country cannot attract and sustain foreign investors.

The Reserve Bank of Zimbabwe (RBZ) is convinced that by opening up the economy for business, the country would have struck the right chord for the sustainable transformation of the economy. Opening Zimbabwe for business basically means attracting foreign and domestic investment in order to increase production, jobs, fiscal space and exports. This renewed hope and confidence would need local businesses to work together in improving their efficiencies and competitiveness so as to brace for competition from foreign investors. These companies should commit to building an ethical business culture and adhere to good corporate practices and guidelines that are internationally recognised and competitive in nature.

Effective corporate governance is also crucial for banks since it enhances transparency. Ownership structures of banks in Zimbabwe are varied with some banks being foreign owned, others owned by private entities while others have some degree of state ownership. Each type of ownership structure poses governance challenges. In all instances, transparency and fairness in banks’ lending and investment decisions, becomes a critical requirement. Therefore, banks should gradually liberalise the foreign currency market and continue supporting productive sectors of the economy through favourable lending requirements.

Chapter 4 of the National Code on Corporate Governance (“ZimCode principle”), clause 187, states that business leaders should understand risk and how it can be measured, eliminated or mitigated. Risk management systems on an enterprise-wide basis should be independently assured for effectiveness in goal delivery. It is important to note that the health of the financial system largely depends on their capacity to identify measure, monitor and control their risks. Banks face a wide range of complex risks in their day to day operations, including risks relating to credit, liquidity, exposure concentration, market risks, settlement, and internal operations. The consequences of mismanaging their risks can therefore be very severe not only for the individual bank, but also for the banking system and the nation as a whole.

The monetary policy should seek to achieve and maintain price stability in the interest of sustainable and balanced economic development and growth. Price stability reduces uncertainty in the economy and therefore provides a favourable environment for growth and employment creation. Furthermore, low inflation contributes to the protection of the purchasing power of all Zimbabweans, particularly the poor who have no means of defending themselves against continually rising prices. Hence the RBZ should maintain use of contractionary measures to restrict money supply growth to contain inflation.

The RBZ, in collaboration with the Ministry of Finance, is working on the “Microfinance Amendment Bill”. Among other issues the bill seeks to address and enhance corporate governance systems and risk management practices within the microfinance sector. This basically means effective corporate governance is a fundamental matter for all the financial institution and it should be adhered to.

For more information on the ZimCode contact: admin@zimcode.net