The impact of shadow banking and banking regulations on commercial banks’ financial performance in Zimbabwe
Abstract
The rapid expansion of the shadow banking system has heightened scholarly and regulatory concern due to its implications for financial stability, systemic risk, and regulatory arbitrage. In developing economies such as Zimbabwe, characterised by policy volatility and institutional fragility, the rise of shadow banking presents unique challenges to the efficiency and prudential soundness of commercial banks. This study examines the impact of shadow banking and banking regulations on the financial performance of Zimbabwean commercial banks between 2009 and 2022, covering all 13 licensed institutions. Financial performance was proxied by return on assets (ROA), and a Dynamic Ordinary Least Squares (DOLS) panel regression model was employed to address endogeneity and serial correlation, thereby enhancing robustness of the estimates. Data were sourced from the Reserve Bank of Zimbabwe (RBZ) and the Securities and Exchange Commission of Zimbabwe. Empirical findings indicate that shadow banking exerts a negative and statistically significant effect on commercial banks’ performance, reflecting how lightly regulated intermediaries erode profitability, liquidity, and systemic confidence. Conversely, banking regulations have a positive and significant influence, demonstrating that effective prudential frameworks and supervisory oversight strengthen institutional resilience. These results align with evidence from other developing economies yet diverge from advanced markets where regulatory depth mitigates instability. The study emphasise the need for regulatory harmonisation, macroprudential integration, and expanded oversight to safeguard financial stability and sustainable credit intermediation in Zimbabwe’s evolving economic landscape.
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