Designing a regulatory framework for an inclusive and sustainable banking in Zimbabwe
DOI:
https://doi.org/10.64754/thedyke.v20i1.714Keywords:
shadow banking, banking regulation, financial performance, financial stability, commercial banks, regulatory frameworkAbstract
The rapid expansion of the shadow banking system, alongside sustained financial innovation, intensifies concerns over financial stability, systemic risk, and the adequacy of conventional banking regulation. In emerging economies such as Zimbabwe, fragmented regulatory frameworks have created opportunities for regulatory arbitrage and uneven oversight between commercial banks and shadow banking institutions. This study examines the effects of shadow banking and banking regulation on the financial performance of commercial banks in Zimbabwe and proposes an inclusive and sustainable regulatory framework that harmonises oversight across the banking sector. Using panel data from 13 commercial banks covering the period 2009–2022, the study employs Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) models to estimate the long-run relationships among the variables. The findings revealed that banking regulation have a positive and statistically significant effect on commercial banks' financial performance, whereas shadow banking exerts a significant negative effect by diverting financial intermediation and increasing competitive pressures outside the regulated banking system. Macroeconomic conditions were also found to significantly influence banking sector performance, highlighting the importance of macroeconomic stability in sustaining financial resilience. The study proposes a unified, risk-based regulatory framework that integrates shadow banking into the mainstream prudential and supervisory architecture to minimise systemic risk, reduce regulatory arbitrage, and strengthen financial stability. The study concludes that extending proportionate regulatory oversight to shadow banking institutions, while reinforcing prudential regulation of commercial banks, is essential for fostering an inclusive, resilient, and sustainable banking system capable of supporting Zimbabwe's long-term economic development. Future research should incorporate other regulated financial institutions to provide a more comprehensive assessment of financial sector regulation.
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