Banks under scrutiny

CLOUDINE MATOLA

The Reserve Bank of Zimbabwe (RBZ) has blamed commercial banks for incurring avoidable and costly cash repatriation expenses, arguing that the problem stems from inefficiencies within the banking system rather than structural shortages, Business Times can report.

The central bank said banks are unnecessarily repatriating large volumes of cash to fund external payments, even though these costs could be eliminated through more active interbank trading to balance cash and nostro positions.

Cash repatriation costs arise from structural mismatches within the banking system, where some institutions are cash-rich but lack sufficient nostro balances for external payments, while others hold significant nostro balances but face shortages of physical cash to meet domestic demand.

As a result, banks with inadequate nostro balances are forced to repatriate cash offshore to fund external transactions, at significant cost, while other banks sit on idle offshore balances and simultaneously struggle to source cash locally.

This imbalance, the RBZ argues, has contributed to persistent liquidity challenges in the domestic market, occasionally leaving banks unable to dispense cash to customers when demand spikes.

“The situation we are faced with is one where a bank may not have cash when it is needed to dispense to domestic customers,” the central bank’s Deputy Governor, Dr Innocent Matshe.

“At the same time, another bank may be holding significant nostro balances but does not have the physical cash.”

The RBZ believes the solution lies in interbank trading arrangements, where banks with excess cash can exchange with those holding surplus nostro balances, reducing the need for costly offshore cash movements or reliance on expensive external credit lines.

“Those with nostro needing cash can trade with the bank with the cash, and those with cash needing nostro can do vice versa, instead of being slapped with costs of bringing in cash or accessing credit lines outside,” Dr Matshe said.

He said banks were collectively spending millions of dollars on unnecessary cash repatriation, despite the availability of domestic alternatives.

“Let me just start by saying that the repatriation of cash is actually a banks problem. But you are spending millions of dollars to repatriate cash, why are you doing it?” Dr Matshe said.

“And I think this is a conversation we should have with banks and so on. It talks to the cost, right? Because you are incurring a cost that you do not have to make. Banks need to trade among themselves. Let us fix that. You might actually find that this problem is not a problem,” he added.

Beyond cash management, Dr Matshe reiterated the central bank’s strong support for initiatives aimed at reducing prices and integrating the informal sector into the formal financial system, with digitalisation at the centre of that strategy.

“But the one thing that I would like to be clear about is that the Reserve Bank is very supportive of all programs that reduce price to include, to basically suck in the informal sector into the system,” he said.

“That includes, there will be a very big push towards digitalisation. And this is very simple. We want transparency in the transaction space. We want to be able—and this is good for business, good for capital markets—to mobilise, as you can see with the closer, that you can mobilise that. And at reasonable rates. So it is good,” Dr Matshe said.

The remarks come against concerns raised by Nedbank’s Treasury, Marketing and Corporate Affairs executive head, Latifa Kassim, who warned that the growing cash-based economy poses risks to the banking sector, particularly in sustaining correspondent banking relationships.

Kassim said the continued need to repatriate cash offshore could raise red flags with correspondent banks, potentially affecting Zimbabwe’s access to international financial channels.

“And finally on the digital systems, indeed Deputy Governor, we have seen the cash economy growing, in fact from the banking sector we feel this might have an impact on our ability to continue to sustain our correspondent relationships because we have to continue to repatriate cash offshore, which can raise a lot of concerns with the correspondent banks,” she said.

She added that accelerating the adoption of digital platforms could ease these pressures while supporting international trade.

“And bringing into play the digital system or platform, which I think also supports international trade, is something that we need to consider in earnest,” Kassim said.

Kassim also welcomed Zimbabwe’s improving inflation trajectory but cautioned policymakers against allowing the economy to slide into deflation, which she said could suppress aggregate demand and stall economic activity.

“What exchange rate stability does to inflation—we have seen sustained good inflation rates and we are looking at an improvement this year,” she said.

“And Deputy Governor did talk about disinflation and we seemed quite happy about that, but we also need to be cautious that we are not getting into a deflation which is going to impact the economy negatively.”

She urged the central bank to remain proactive in stimulating demand if conditions deteriorate.

“And like you said, which is quite positive, you do sound ready to intervene and please do so quickly because I feel like aggregate demand is now struggling and we need to push that up so that we can see more economic activity,” Kassim said.