Bank profits plunge as forex windfall ends

Zimbabwe's banking sector recorded a sharp decline in profitability last year, with post-tax earnings falling by nearly US$700 million as exchange rate stability wiped out the foreign currency revaluation gains that had fuelled profits during years of currency volatility.

According to the Reserve Bank of Zimbabwe's (RBZ) 2025 Bank Supervision Report, aggregate post-tax profits dropped 67.2% to US$337.65 million in 2025 from US$1.03 billion the previous year.

RBZ director for bank supervision, surveillance and financial stability Philip Madamombe said the decline reflected a shift in the operating environment following improved exchange rate stability.

"Aggregate profitability moderated during the review period, largely due to lower revaluation gains in the context of exchange-rate stability," Madamombe said.

"While fees and commission remained the dominant source of income, contribution of interest income from loans and advances improved, signalling a gradual strengthening of core banking activities."

For years, banks benefited from significant accounting gains as the local currency depreciated, with foreign currency-denominated assets increasing in value whenever the exchange rate weakened. However, the introduction of the Zimbabwe Gold (ZiG) currency, supported by tighter monetary and fiscal policies, has reduced exchange rate volatility, forcing banks to rely more on traditional banking activities such as lending, transaction fees and commissions.

Despite the steep decline in profits, the RBZ said the banking sector remained financially sound, with capital adequacy, liquidity and asset quality all comfortably above regulatory minimums.

The report also highlighted the continued dominance of the US dollar in Zimbabwe's financial system. Foreign currency loans accounted for 89.63% of total lending at the end of 2025, while nearly 79% of bank deposits were held in US dollars, underscoring persistent public preference for the greenback despite government efforts to strengthen confidence in the ZiG.

Economist Vince Musewe said banks were adjusting to a new reality where profits would increasingly come from core banking services rather than exchange rate movements.

"Banks were making more money from deal fees and forex trading than normal banking services. That was temporary," Musewe said.

"I think we are going to see them begin to shift more to artificial intelligence as they cut costs. There will also be more competition and innovation, which is good for consumers."

Economist Tapiwa Mashakada said banks could improve profitability by maximising returns from their property portfolios through regular asset revaluations.

"Property is the way to go," he said.

The RBZ report also showed a decline in lending to small and medium enterprises (SMEs). The number of SME loans fell from 11,927 in 2024 to 7,826 in 2025, while the value of lending declined from ZiG5.46 billion to ZiG4.18 billion.

"The high level of informalisation among MSMEs and reliance on a cash economy hinder MSMEs from accessing credit from formal financial institutions," the central bank said.

Overall lending by the banking sector continued to grow, with loans and advances increasing by 35.15% to ZiG75.59 billion by the end of December 2025 from ZiG55.93 billion a year earlier. Commercial banks accounted for more than 85% of total credit issued.

The loans-to-deposits ratio stood at 61.19%, which the RBZ said reflected a moderate level of financial intermediation, while lending to productive sectors increased to 74.82% of total credit, up from 72.25% in 2024.

RBZ Governor John Mushayavanhu said the central bank would continue prioritising financial system resilience.

"We will continue to focus on safeguarding financial stability, strengthening supervision and proactively addressing emerging risks in an increasingly complex financial environment," he said.