Abstract

The paper investigated liquidity management by commercial banks when there was hyperinflation. The main enquiry of this study was to understand how Zimbabwe commercial banks managed liquidity risk in a hyperinflationary environment. To achieve this, information was obtained from primary sources with data collected from decision makers of fifteen commercial banks which met the criteria of full scale operation from 2000 -2009. To compliment this, secondary data sources were used. Focal areas of the study were to analyse years of bank business; ownership; liquidity risk management responsibility; products offered by commercial banks; major sources of funds and applications; internal and external liquid instruments to manage liquidity risk, impact of inflation on liquidity risk management; and the effect the Reserve Bank of Zimbabwe instruments introduced to fight inflation. The findings show that liquidity risk management during the hyperinflation was a challenge. The Instruments used by the Reserve Bank of Zimbabwe to fight inflation had negative effect on commercial banks asset and liability management. In line with this, the monetary authorities were recommended to put in place measures which took into consideration the impact of their policies on bank liquidity risk management when there are problems of high inflation. The study also recommends commercial banks to take proactive management measures and long term views to operations, in other words beyond the current challenges posed by inflation. In the process banks would create new demand for the products.

Key words: Commercial banks, liquidity management, assets, liabilities, hyperinflation, Reserve Bank of Zimbabwe.