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Cash-hoarding cripples Zimbabwe banking sector
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Zimbabwe's banking sector is under immense strain due to a severe liquidity crisis, with billions of dollars being hoarded outside the formal financial system by wealthy individuals. This alarming development, revealed by the Bankers Association of Zimbabwe (BAZ), is significantly undermining the sector's ability to support long-term economic growth.
According to Dr. Sibongile Moyo, the newly appointed president of BAZ and managing director of Nedbank Zimbabwe, a substantial portion of money in the country is not circulating through formal banking channels. Instead, it is stashed in private safes, vaults, and even under mattresses, effectively removing it from the financial system.
"There is a lot of money circulating outside the formal banking system," said Dr. Moyo. "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."
Latest figures reveal that Zimbabwe's entire banking industry manages deposits equivalent to just US$3.3 billion. However, of this amount, US$1.9 billion (58%) has already been lent out, while 30% is locked in statutory reserves and regulatory holdings. That leaves only 12% available for daily liquidity needs and interbank settlements.
"This is a very small pool from which to lend," Dr. Moyo emphasized. "We are already lending US$1.9 billion, and the remaining chunk is not accessible. We are left with just 12% of all deposits to meet daily client payments and bank operations."
Dr. Moyo explained that the structure of Zimbabwe's deposits further complicates the situation. Over 70% of the deposits are current accounts - short-term funds that depositors can withdraw at any time. This transient nature of deposits makes them unsuitable for long-term lending.
Furthermore, Zimbabwe lacks a deep and functional capital market, leaving banks as the primary, and often overstretched, financiers of economic activity. The hoarding of large amounts of cash outside the banking system only exacerbates this problem.
In response to these challenges, Zimbabwean banks have turned to international lenders to access long-term credit lines. According to Dr. Moyo, partnerships have been established with institutions such as the European Investment Bank, Agence Française de Développement, British and Dutch development finance institutions, the Trade and Development Bank (TDB), and the African Development Bank (AfDB).
"These international partners have provided funding with terms ranging from five to seven years, which allows us to better support long-term projects and capital investment by our clients," she said.
Dr. Moyo added that in some cases, external funders are now choosing to lend directly to Zimbabwean corporates, with local banks stepping in as co-financiers or helping structure the transactions.
The country's cash-driven housing market also presents a significant opportunity to unlock capital, Dr. Moyo noted. She explained that the vast majority of real estate transactions are conducted in cash, with no mortgage systems in place, meaning billions in potential investment remains locked in private homes.
"Every house you see was bought with cash. There are no mortgages," she said. "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."
To further reduce dependency on traditional lending, banks are also exploring value chain financing in sectors such as agriculture and horticulture. Through this model, banks provide guarantees, facilitate access to markets, and offer risk management instruments instead of simply issuing cash loans.
Despite these efforts, Zimbabwe's banking sector remains constrained. The ongoing trend of individuals hoarding money outside the formal system continues to distort the financial landscape. Unless substantial funds are reintegrated into the banking sector, the industry will struggle to support the long-term investment and economic growth Zimbabwe desperately needs.
According to Dr. Sibongile Moyo, the newly appointed president of BAZ and managing director of Nedbank Zimbabwe, a substantial portion of money in the country is not circulating through formal banking channels. Instead, it is stashed in private safes, vaults, and even under mattresses, effectively removing it from the financial system.
"There is a lot of money circulating outside the formal banking system," said Dr. Moyo. "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."
Latest figures reveal that Zimbabwe's entire banking industry manages deposits equivalent to just US$3.3 billion. However, of this amount, US$1.9 billion (58%) has already been lent out, while 30% is locked in statutory reserves and regulatory holdings. That leaves only 12% available for daily liquidity needs and interbank settlements.
"This is a very small pool from which to lend," Dr. Moyo emphasized. "We are already lending US$1.9 billion, and the remaining chunk is not accessible. We are left with just 12% of all deposits to meet daily client payments and bank operations."
Dr. Moyo explained that the structure of Zimbabwe's deposits further complicates the situation. Over 70% of the deposits are current accounts - short-term funds that depositors can withdraw at any time. This transient nature of deposits makes them unsuitable for long-term lending.
Furthermore, Zimbabwe lacks a deep and functional capital market, leaving banks as the primary, and often overstretched, financiers of economic activity. The hoarding of large amounts of cash outside the banking system only exacerbates this problem.
In response to these challenges, Zimbabwean banks have turned to international lenders to access long-term credit lines. According to Dr. Moyo, partnerships have been established with institutions such as the European Investment Bank, Agence Française de Développement, British and Dutch development finance institutions, the Trade and Development Bank (TDB), and the African Development Bank (AfDB).
"These international partners have provided funding with terms ranging from five to seven years, which allows us to better support long-term projects and capital investment by our clients," she said.
Dr. Moyo added that in some cases, external funders are now choosing to lend directly to Zimbabwean corporates, with local banks stepping in as co-financiers or helping structure the transactions.
The country's cash-driven housing market also presents a significant opportunity to unlock capital, Dr. Moyo noted. She explained that the vast majority of real estate transactions are conducted in cash, with no mortgage systems in place, meaning billions in potential investment remains locked in private homes.
"Every house you see was bought with cash. There are no mortgages," she said. "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."
To further reduce dependency on traditional lending, banks are also exploring value chain financing in sectors such as agriculture and horticulture. Through this model, banks provide guarantees, facilitate access to markets, and offer risk management instruments instead of simply issuing cash loans.
Despite these efforts, Zimbabwe's banking sector remains constrained. The ongoing trend of individuals hoarding money outside the formal system continues to distort the financial landscape. Unless substantial funds are reintegrated into the banking sector, the industry will struggle to support the long-term investment and economic growth Zimbabwe desperately needs.
Source - Business Times
