Journal of Economics and Behavioral Studies (ISSN: 2220-6140) Vol. 9, No. 1, pp. 207-216, February 2017 207 A Bank Failure Prediction Model for Zimbabwe: A Corporate Governance Perspective TinevimboSantu Chokuda 1 , Njabulo Nkomazana 1 , Wilford Mawanza 2 1 Midlands State University, Gweru, Zimbabwe 2 Lupane State University, Bulawayo, Zimbabwe chokudatv@gmail.com, chokudatv@gmail.com, wilfordma@gmail.com Abstract: The primary objective of this study was to come up with a bank failure prediction model for Zimbabwe. The research sample comprised five failed commercial banks that were operational in 2003 as well as five non-failed commercial banks that were operational during that same period. The model developed in this research was applied to each of these banks and a failure classification awarded. Out of a sample of ten banks, the model misclassified one bank as failed instead of non-failed and this signified a strong predictive power. Results revealed a distinct pattern of owner managed banks being predicted to fail while those banks run by professional managers, divorced from ownership, were getting high passes, a sign of stability. Some owner managed entities were predicted as non-failing and this was interpreted as emanating from a strong presence of institutional and other outside shareholders with a significant shareholding in the banks and thus eliminating shareholder concentration. The findings from the research showed that owner managers were more likely to commit corporate governance abuses than professional managers. It was concluded that corporate governance factors significantly contributed to the bank failures experienced in Zimbabwe between 2003 and 2004. As a result, banks need to focus more on corporate governance factors to avoid failures in the future. Keywords: Bank failures, corporate governance, model, professional managers, Zimbabwe 1. Introduction A review by the International Monetary Fund (IMF) revealed that 133 out of 181 member countries had experienced significant banking sector problems during the years 1980-1996 (Goodhart et al., 1998). The most notable failures being in Argentina, Chile and Uruguay (1979-1983), the Nordic banking crisis (1987- 1994), Japan (1992), Mexico (1994), the Asian Financial Crisis (1998) and the Global Financial Crisis(2008). The increase in bank failures has rekindled interest in early warning systems. Bank regulators, in particular, are attracted to the prospects of models that assist them to predict banking distress in good time (Maimbo, 2000). In the last quarter of 2003 and the first quarter of 2004, a number of banking institutions in Zimbabwe faced serious challenges that ranged from chronic liquidity problems, deep rooted risk management deficiencies and poor corporate governance practices. By the end of 2004, ten (10) banking institutions had been placed under curatorship, two (2) were under liquidation and one discount house had been closed (Muranda, 2006).The fact that remains glaring and renders the Zimbabwean banking crisis significantly unique is that out of all the financial institutions operating at the time, only locally owned banks were affected. The banking crisis that saw the collapse of these banks was triggered by the collapse of ENG Capital asset management and later developed into a fully-fledged systemic crisis only drawn apart from crises witnessed in other countries in that it seemed to affect only those banks with a significant domestic ownership. Other crises witnessed in different countries have been truly systemic in nature affecting banks randomly and indiscriminately with the only link between the collapsed institutions being shared structural weaknesses. The fact that all the collapsed institutions in Zimbabwe were locally owned cannot be treated as mere coincidence but points towards a far deep rooted problem. Coorey et al. (2005: 55) pointed out that, “It seems clear in retrospect, even if there was uncertainty at the time, that the difficulties faced by the banking sector in 2003-2004 were not systemic. The institutions affected in 2004 were all relatively small, collectively accounting for only about 12% of bank deposits and 16% of assets.”The Reserve Bank of Zimbabwe (RBZ) responded by stepping up the regulatory regime and tightening entry requirements into the sector. Just as confidence was beginning to creep back into the sector another bank, Renaissance Merchant Bank was placed under curatorship at the beginning of June 2011after investigations revealed the collapse of corporate governance structures within the institution. The bank came under spotlight after several irregularities were found to be working against the interests of business. These included the collapse of corporate governance