Zimbabwe’s banking sector is facing a serious liquidity crisis as wealthy individuals hoard billions outside the formal system. Dr. Sibongile Moyo of BAZ highlights that much of the country’s wealth is stashed away, hindering banks’ ability to support economic growth. With only 12% of deposits available for lending, the situation is dire. International partnerships are being sought, and innovative financing models are being explored to address the ongoing financial strain.
Zimbabwe’s banking sector is grappling with a severe liquidity crisis that has reached troubling levels. Recently, the Bankers Association of Zimbabwe (BAZ) disclosed that wealthy individuals hoard billions of dollars outside of the formal financial system, which is hampering the banks’ ability to contribute to long-term economic stability. The newly appointed president of BAZ, Dr. Sibongile Moyo, highlighted this disturbing trend and its implications for the economy.
Dr. Moyo pointed out that a significant amount of the country’s wealth is not circulating through banks but rather is hidden in private safes, vaults, and even hidden away under mattresses. “There is a lot of money circulating outside the formal banking system,” Dr. Moyo explained. “Individuals have almost become like banks themselves – possibly holding more money than we do in the banks. That money is not working for the economy because we can’t use it to lend.”
Current statistics indicate that Zimbabwe’s banking industry manages deposits totaling approximately US$3.3 billion. Alarmingly, US$1.9 billion, or 58% of those deposits, have already been lent out. Additionally, 30% is tied up in mandatory reserves, leaving a meager 12% available for daily banking operations and interbank transactions.
“This is a very small pool from which to lend,” emphasized Dr. Moyo. She acknowledged the restrictions imposed by the prevailing deposit structure, where over 70% comprises current accounts. These are short-term funds that can be withdrawn at any time, rendering them inadequate for long-term loans.
The lack of a developed capital market in Zimbabwe further compounds these issues. Banks find themselves as the primary lenders, yet they often operate under strain due to the prevalent cash hoarding. To navigate through this financial maze, Zimbabwean banks have sought support from international lending institutions, forging partnerships with organizations like the European Investment Bank and the African Development Bank.
“These international partners have provided funding with terms ranging from five to seven years,” Dr. Moyo noted. This funding is crucial as it enables banks to better assist their clients in long-term projects and capital investments. There have even been instances of external lenders providing funds directly to local corporations, with banks acting as co-financiers.
Additionally, the housing market’s cash transactions present a remarkable opportunity for capital growth, Dr. Moyo noted. She stressed that almost all real estate purchases are made in cash since the country lacks a viable mortgage system. “Every house you see was bought with cash. There are no mortgages. Imagine the amount of money that could be unlocked if we developed a robust mortgage system,” she remarked. This unlocked capital could be a game-changer for Zimbabwe’s businesses and economic development.
In an effort to reduce reliance on traditional loans, banks are exploring innovative financing models, particularly in agricultural sectors. By offering guarantees and enabling market access, they aim to provide a more sustainable approach to lending.
Despite these strategies, the ongoing cash hoarding remains a crippling challenge. Zimbabwe’s banking sector struggles to reintegrate funds into the formal economy, which is urgently needed for fostering long-term investment and facilitating economic growth. The situation is critical, and without reevaluating the cash hoarding habits, Zimbabwe’s financial institutions will continue to face uphill battles.
The banking sector in Zimbabwe faces a daunting liquidity crisis exacerbated by widespread cash hoarding by wealthy individuals. With critical funds stuck outside the formal financial system, banks are struggling to lend adequately, limiting economic growth. Dr. Sibongile Moyo emphasized the need for innovative financial solutions, including partnerships with international lenders and developing a mortgage system to unlock trapped capital. Until these substantial funds are reintegrated into the banking system, Zimbabwe’s economic future remains uncertain.
Original Source: www.thezimbabwemail.com
