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ABSTRACT
The Zimbabwean economy has undergone economic and financial transformation over the past two decades which has been accompanied by multiple changes in the banking sector. The country embarked on financial reforms in the 1990s which subsequently led to a twofold growth in the number of banks in the system. However, the growth in the number of banks exacerbated competition in the sector which subsequently led to an unprecedented collapse of banks between 1998 and 2005. This study uses the lifecycle model to ascertain behavior of banks between the period 1990 and 2008. The results show that the majority of banks that collapsed in Zimbabwe between 1998 and 2008 were, on average, at their start-up phase. However, the collapse of these banks was propelled by different circumstances ranging from bank specific to general market factors. The study provides some policy recommendations regarding the licensing of banks in emerging markets economies.
Key words: Zimbabwe, corporate lifecycle, start-up phase, growth phase, banking sector
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INTRODUCTION
This paper employs the lifecycle model to investigate the lifecycle behavior of banks in Zimbabwe between 1990 and 2008. The lifecycle model refers to the way in which "products move from launch to growth to a mature and ultimately to a decline phase" (Bender and Ward, 2002:30). This model may be used to explain the behavior of firms or products during their life. Zimbabwe went through some rough times between 1990 and 2008 that were mainly driven by socio-political and economic challenges. These challenges subsequently had adverse effects on the performance and behavior of the financial sector. The financial sector in Zimbabwe comprises the banking industry, non-bank financial intermediaries and the stock market. From 1990 to early 2000, the country's banking sector seemed to outperform other economic sectors. However, in spite of the gains realized by the banking sector during this period, the country was subsequently characterized by numerous economic, political, humanitarian and financial crises (Moss, 2007; Ncube, Richards, & Yau, 2009). During this period, inflation skyrocketed from 18 percent in 1990 to 133 percent in 2005 leading to speculative practices in the banking sector (RBZ, 2005). Some of the challenges included: first, the one size fits all Economic Structural Adjustment Programme (ESAP) of 1991 led...