Cash-hoarding cripples banking sector: BAZ

ROBIN PHIRI

Zimbabwe’s banking sector is facing a severe liquidity crunch as billions of dollars are hoarded outside the formal financial system by wealthy individuals, according to the Bankers Association of Zimbabwe (BAZ).

With cash stashed in vaults, safe boxes and under mattresses, these individuals have effectively become de facto banks, starving formal institutions of capital or liquidity critical for long-term lending.

Dr Sibongile Moyo, the newly appointed president of BAZ and managing director of Nedbank Zimbabwe, put it bluntly:

“…a lot of money is circulating outside the formal banking system. I think individuals (in Zimbabwe) have almost become like banks themselves, probably (having) some more money than what we hold in the banks. So that money is effectively not working for the economy because it’s sitting outside the formal channel—we can’t use it to lend.”

Current figures reveal the precarious state of the sector.

Zimbabwe’s entire banking industry is sitting on just US$3.3bn. Consequently, Dr Moyo warned that the entire industry is operating with a “very small pool from which to lend”—crippling its ability to support economic expansion.

Of the US$3.3bn, a staggering 58% (US$1.9bn) has already been loaned out.

Another 30% is tied up in statutory reserves and regulatory holdings, leaving a mere 12% available for a day-to-day liquidity and interbank settlements.

“Our members are 19 banks, 14 of which are commercial banks, most of which are relatively large,” Dr Moyo explained.
“We also have four building societies and one Savings Bank. Now as an industry, total deposits that we oversee or look after were the equivalent of US$3.3bn,” Moyo said.

Despite the constrained pool, banks have already lent out US$1.9bn, which represents 58% of total deposits. A further 30% is tied up in mandatory reserve requirements and statutory holdings, leaving barely 12% of deposits available for daily liquidity and interbank settlements.

“So look, the entire market only has US$3.3bn of deposits, which is a very small pool from which to lend,” Dr Moyo said.
“We’re already lending US$1.9bn, which is 58%. The other 30% is in reserve requirements. That’s already 80% of liquidity that’s committed to loans and regulatory reserves.”

“So we only have 12% of all the deposits in the economy to make daily settlements for client payments,” she added.

This pressure has created daily liquidity challenges for banks, hampering their ability to make timeous settlements.

Dr Moyo said the structure of deposits in the market renders long-term lending practically impossible.

“There is no capacity to lend long term because of three reasons,” she said.
“The first is the nature of our deposits—they are largely transitory deposits. More than 70% are current accounts. These are people who want their money the next day. So you can’t transform that into long-term assets.”

“The second reason is the fact that if you don’t have a deep capital market or bond market, where companies can go and raise long-term funding, banks remain the sole intermediaries—and they’re ill-equipped.

And the third is you have a lot of money that is circulating outside the formal banking system.”

Dr Moyo stated that the banking industry has turned to external credit line expanding its reach beyond the domestic deposit base.

“We have taken four strategic steps to try and address the problem,” Dr Moyo said.
“Zimbabwean banks have secured external credit lines to  bridge the domestic funding gap. This is where our international partners  particularly in Europe have been instrumental.”

She cited  support from institutions such as the European Investment Bank, Agence Francaise de Development, UK  develop finance institutions, Netherlands financiers and regional entities like  the Trade and Development Bank Group (TDB) and  the African Development Bank (AfDB).

“These lenders  provide five to seven  year funds. That kind of tenure allows us to  support customers  with long term capital.”

In some cases, Dr Moyo said external funders  are bypassing domestic banks altogether, opting to fund  corporates directly, with banks stepping in as co -financiers.

“ Some external lenders are now bypassing local banks altogether to fund local corporates directly, with domestic banks stepping in as co-financiers.

“For example, if a company needs US$100m, the external lender may provide directly, and we then co-finance or offer support in structuring.”

Dr Moyo also highlighted the country’s cash-driven  housing market as a massive opportunity for unlocking dormant capital.

She said pension funds have also started to support housing projects—unlocking capital that could otherwise lie dormant.

“There’s a lot of housing projects that are taking place, and pension funds have been supporting housing development,” she said.
“I want investors to know that every house that you see was bought by cash—there are no mortgages. So imagine the amount of money that is locked, the amount of capital that can be unlocked if we start offering mortgages. And this money can then be used to support businesses.”
To reduce reliance on raw cash lending, banks are also engaging in value chain financing—particularly in agriculture and horticulture—by providing guarantees, facilitating market access, and offering risk mitigation instruments.

“We identify a value chain and all the active players within that chain, and then come in as a trusted person,” she said.
“Sometimes you are not giving people money, but you are providing risk mitigation instruments and guarantees. Some of what they need is not necessarily money—maybe it’s access to markets, maybe it’s access to labour. So we come in now as a trusted party to allow them to access the things that they want without giving them money directly.”

Despite these efforts, the banking sector remains caught in a liquidity trap, and the rise of cash-hoarding individuals as informal financiers continues to distort the formal credit system. Until significant capital is pulled back into formal circulation, Zimbabwe’s banks will remain hamstrung—unable to power the long-term growth the economy urgently needs.