Cash-rich but, credit-shy: Zim banks hold back on loans

Zimbabwean banks are holding onto nearly US$3 billion in deposits, but only half of this amount is being loaned out due to factors such as the nature of deposits, the 2028 elections and the end of the multicurrency system in 2030.

In an interview with Business Weekly yesterday, Lawrence Nyazema, president of the Bankers Association of Zimbabwe (BAZ) and CEO of CBZ Holdings (which owns the country’s largest bank, CBZ Bank), estimates that local banks hold about US$2,7 billion in deposits, with nearly 90 percent denominated in foreign currency.

Additionally, Nyazema estimated, credit lines contribute another US$300-$400 million, bringing the total available lending pool to roughly US$3 billion.

Despite this availability, banks have only advanced approximately US$1,5 billion which translates to a low loan-to-deposit ratio compared to regional and international markets.

“Looking at banks in Namibia,” Nyazema said, “they lend roughly 80 percent of their deposits, with 20 percent reserved for liquidity. However, in our case, due to the multicurrency system and a high proportion of demand deposits, we maintain a larger liquidity buffer to meet cash withdrawal needs”.

He said Zimbabwe’s economy relies heavily on cash, particularly foreign currency. As a result, banks set aside nearly US$1 billion in nostro accounts and cash to ensure immediate availability for client withdrawals.

This cautious approach stems from a desire to avoid a repeat of past trust issues in the banking sector.

To improve the loan-to-deposit ratio, Nyazema suggests converting current deposits into savings or fixed deposits, which offer longer terms and are more suitable for lending. However, he acknowledges the challenge: The current structure, with 90 percent of deposits in current accounts, means these funds must be accessible on demand.

Another option, Nyazema noted, is to rely on credit lines. However, these can be expensive for borrowers as they land into the country at interest rates above 10 percent.

The Central Bank has also contributed to a more cautious lending environment by raising the statutory reserve requirement for US dollar balances from 15 percent to 20 percent. This measure aims to prevent a repeat of the Zimbabwe Asset Management Company (ZAMCO) situation, which became a burden for taxpayers.

ZAMCO was established in 2014 to address a banking sector crisis caused by a high volume of non-performing loans (NPLs). At the time, the NPL ratio had risen to 20,45 percent, significantly exceeding the internationally accepted threshold of 5 percent.

Commenting on reports that some banks are hesitant to grant loan applications extending past 2028 in the wake of the approaching 2030 deadline for the end of the multi-currency system, Nyazema said banks might have pushed their tenures to range between a year to an average of three years to enable them manage the loan facilities ahead of the 2030 deadline when Government make a decision on the fate of the use of multiple currencies in Zimbabwe.

“Well, I think for your working capital facilities, those ones tend to be one year in tenure. If you look at medium-term financing, capital expenditure for example, the average tenure will be around three years.

The market does push out to five years. I think if there are some banks that are lending up to 2028, it is out of the need to be cautious.

“It is unlikely that you get a bank that says if multi-currency is ending on December 31, 2030, I will also have all my facilities ending on the same date. As a bank, you are likely to push your facilities back by a year, so that you give your clients enough time to pay as it is not every day that clients pay on the exact date that the loan is maturing.

“So, you are likely to give yourself some extra time in case not everything goes according to plan. So, I can understand if there are some banks that are going up to 2029. For the ones going up to 2028, I would encourage them to push out a little bit,” said Nyazema.

However, Business Weekly has it on good authority that some banks’ supposed decision not to extend bank loans beyond 2028 comes despite the Government’s recent extension of multicurrency tenure to 2030, which was intended to provide greater financial stability and predictability.

The banking sector’s alleged reluctance to extend credit beyond 2028 highlights growing concerns about policy reversals and uncertainties, especially when approaching elections.

Zimbabweans are set to go to polls in 2028 to elect new national leadership according to the country’s constitution that stipulates that the plebiscite should be conducted after every five years.

Historically, election years have been marked by abrupt changes in economic policies that have often unsettled markets and businesses alike.

Zimbabwe National Chamber of Commerce (ZNCC) president, Mike Kamungeremu, said before extension of the multicurrency tenure banks were not lending beyond 2025, but have now extended to about 2028.

“When Government made the announcement (to extend the multi-currency system to 2030), we noted that most of the banks did not immediately start adjusting.

“They waited until the monetary policy, but after the monetary policy was announced, in which it was then confirmed that multicurrency is here to stay, we have actually seen some banks extending some of the tenures.

“I know one case where the bank had kept it at 2025, but recently they then adjusted, and it is now expiring around 2028, which is quite commendable on the part of banks,” he said.

Economist, Tinevimbo Shava, emphasised the potential negative impact on economic growth as a result of the banks’ decision.

“Banks’ hesitation to lend beyond 2028 is a significant red flag,” Shava said.

“It signals a lack of confidence in the Government’s ability to maintain consistent economic policies, which is critical for long-term investments and economic stability.”

Shava further explained that the banking sector’s conservative approach could stifle economic growth.

“When banks are unwilling to provide long-term loans, businesses and individuals find it challenging to undertake long-term projects and investments. This reluctance can slow down economic development, reduce job creation and ultimately impact the overall economic health of the nation,” he added.

Economic analyst, Namatai Maeresera, echoed similar concerns, pointing to the Government’s history of policy changes.

“The Government has a history of changing policies abruptly, especially around election times,” Maeresera noted.

“This has created an environment of uncertainty, making it difficult for financial institutions to predict and plan for the future.”

Maeresera added that the extension of the multicurrency tenure to 2030 was a positive step, but it has not been enough to reassure the banks.

“The extension of the multicurrency tenure to 2030 was supposed to provide a sense of stability and predictability. However, the underlying fear of potential policy shifts in an election year overshadows this positive development. Banks are essentially hedging against the risk of sudden and potentially adverse policy changes,” he said.

Kamungeremu added: “So, I am quite sure that probably it is just a matter of time, we will see more and more of the banks beginning to follow suit.”

Kamungeremu noted that they were interested to find out more, particularly in terms of the new facilities that were now being issued, which period the banks were actually giving.

The fear within the banking sector is not unfounded, over the past decades, the Government has made several abrupt policy changes, particularly around election periods.

For instance, the sudden reintroduction of the Zimbabwean dollar in 2019 after years of using a multicurrency system caused widespread economic turmoil and hyperinflation, eroding trust in the sector.

Such historical precedents have left a lasting impression on financial institutions, leading to a cautious approach towards long-term lending. The potential for a repeat of such policy reversals, especially in the politically charged atmosphere of an election year, is a risk that banks are not willing to take.

The Government, on its part, has tried to alleviate these concerns by extending the multicurrency tenure to 2030, hoping to instil confidence in the economic landscape.

Despite these assurances, the banking sector’s actions indicate that words alone are insufficient to rebuild trust. The real test will be whether the Government can maintain a stable and predictable policy environment leading up to and beyond the 2028 elections.

The reluctance by banks to lend beyond 2028 serves as a critical reminder of the importance of policy consistency in fostering economic confidence.

As Shava did put it: “Economic stability and growth hinge on predictable and reliable Government policies. Without this, the private sector will always remain cautious, and economic progress will be hampered.”

The Government’s challenge now is to demonstrate its commitment to stability and consistency through actions, not just promises, in order to restore confidence in the long-term economic outlook.-ebusinessweekly