Zimbabwe’s banking sector is under severe strain due to liquidity issues caused by cash hoarding. Wealthy individuals are keeping billions outside the formal financial system, leading to insufficient funds for lending. International partnerships are being sought, and there are opportunities in housing and agricultural financing, but until cash is reintegrated, economic growth remains at risk.
Zimbabwe’s banking sector is facing a daunting liquidity crisis. Wealthy individuals are hoarding billions of dollars outside the formal financial system, as stated by the Bankers Association of Zimbabwe (BAZ). This troubling trend is crippling the sector’s ability to foster long-term economic growth, threatening stability across the board.
According to Dr. Sibongile Moyo, the newly appointed president of BAZ as well as managing director at Nedbank Zimbabwe, a worrisome amount of money in the country isn’t making its way through traditional banking channels. Instead, people are stashing cash away in private safes, vaults, and even under mattresses, effectively pulling it out of circulation.
“There is a lot of money circulating outside the formal banking system,” Dr. Moyo said. “Individuals have almost become like banks themselves – possibly holding more money than we do in the banks. That money is not working for the economy because we can’t use it to lend.”
In fact, the latest figures indicate that the entire banking industry in Zimbabwe has only about US$3.3 billion in deposits. Of that, a hefty US$1.9 billion—or 58%—has already been lent out. Meanwhile, 30% is tied up in statutory reserves, leaving just 12% available for day-to-day liquidity needs and interbank transactions.
“This is a very small pool from which to lend,” Dr. Moyo pointed out. “We are already lending US$1.9 billion, and the remaining chunk is not accessible. We’re left with just 12% of all deposits to meet daily client payments and bank operations.”
Adding to the complexity, since over 70% of these deposits are in current accounts, they represent short-term funds. This transient nature of deposits makes them ill-suited for long-term lending options, further complicating the banking scenario.
Moreover, Zimbabwe’s capital market isn’t deep or functional, which positions banks as both primary and overstretched financiers of economic activity. The ongoing hoarding of cash only intensifies these existing issues.
To tackle these financial challenges, Zimbabwean banks are seeking out international lenders for long-term credit. Dr. Moyo noted that partnerships have formed with entities like the European Investment Bank, British and Dutch development finance institutions, and the African Development Bank (AfDB). This collaboration aims to access capital more readily for investment and infrastructure.
“These international partners have provided funding with terms ranging from five to seven years, allowing us to better support long-term projects and capital investment by our clients,” Dr. Moyo remarked.
Interestingly, some external funders are now opting to lend directly to Zimbabwean corporations, with local banks acting as co-financiers or facilitators in structuring the deals. This could be a game-changer for local businesses needing financial support.
The cash-driven housing market in Zimbabwe is another area full of untapped potential. Since nearly all real estate transactions occur in cash, billions in possible investments are basically stuck in private homes without a mortgage system in place. Dr. Moyo emphasized the opportunity here:
“Every house you see was bought with cash. There are no mortgages. Imagine the amount of money that could be unlocked if we developed a robust mortgage system. That capital could be redirected to support business and economic growth.”
In addition, banks are investigating value chain financing models in sectors like agriculture, providing guarantees, market access, and risk management instruments instead of just cash loans. Still, despite these various strategic efforts, Zimbabwe’s banking system remains constrained.
The ongoing trend of individuals holding money outside the formal sector is simply distorting the entire financial landscape. If substantial funds aren’t reintegrated into the banking system soon, the sector will lag in supporting the crucial long-term investments and economic growth Zimbabwe so desperately needs.
In summary, Zimbabwe’s banking sector is grappling with a liquidity crisis driven by widespread cash hoarding. With most funds locked out of the formal system, banks struggle to support economic growth. International partnerships and innovative financing models may help, but unless the cash returns to banks, the outlook remains troubling. The housing market presents opportunities for unlocking capital, yet significant reforms are needed to mobilize and utilize these funds effectively.
Original Source: www.thezimbabwemail.com
