News / National
Zimbabwe banks reduce lending as crisis persists
06 Sep 2024 at 14:41hrs | Views
Zimbabwe's banking sector is facing significant challenges that have limited its ability to lend, according to the Bankers Association of Zimbabwe (BAZ).
Key issues include the absence of a lender-of-last-resort for US dollar transactions and a liquidity crisis, prompting banks to adopt a cautious lending approach. Businesses, however, need substantial funding to recover from economic crises.
BAZ president Lawrence Nyazema reported that Zimbabwe's loan-to-deposit ratio was 57.7% in June 2024, lagging behind Malawi (59.7%) and Botswana (73.3%).
Strict liquidity and reserve requirements further reduce the funds available for lending.
Unlike other countries, Zimbabwe lacks a central bank facility to manage liquidity risks in US dollar operations, making banks more cautious when lending in foreign currency.
Experts also point to economic volatility, including inflation and currency fluctuations, as factors increasing lending risks. This has resulted in a conservative approach to credit, with many borrowers using cheap loans for foreign currency trading.
Analysts Vince Musewe and Chenaimoyo Mutambasere highlighted the risk of defaults due to economic uncertainty and the exclusion of potential borrowers who lack asset security.
Despite these hurdles, Nyazema noted that Zimbabwean banks hold approximately US$2.7 billion in deposits, with most denominated in foreign currency, but lending remains constrained by the prevailing economic conditions.
Key issues include the absence of a lender-of-last-resort for US dollar transactions and a liquidity crisis, prompting banks to adopt a cautious lending approach. Businesses, however, need substantial funding to recover from economic crises.
BAZ president Lawrence Nyazema reported that Zimbabwe's loan-to-deposit ratio was 57.7% in June 2024, lagging behind Malawi (59.7%) and Botswana (73.3%).
Strict liquidity and reserve requirements further reduce the funds available for lending.
Unlike other countries, Zimbabwe lacks a central bank facility to manage liquidity risks in US dollar operations, making banks more cautious when lending in foreign currency.
Experts also point to economic volatility, including inflation and currency fluctuations, as factors increasing lending risks. This has resulted in a conservative approach to credit, with many borrowers using cheap loans for foreign currency trading.
Analysts Vince Musewe and Chenaimoyo Mutambasere highlighted the risk of defaults due to economic uncertainty and the exclusion of potential borrowers who lack asset security.
Despite these hurdles, Nyazema noted that Zimbabwean banks hold approximately US$2.7 billion in deposits, with most denominated in foreign currency, but lending remains constrained by the prevailing economic conditions.
Source - the independent
