Cash-Hoarding Cripples Zimbabwe Banking Sector

Zimbabwe’s banking sector faces a liquidity crisis due to billions hoarded outside formal finance, limiting economic growth potential. The BAZ indicates significant funds are not being utilized effectively. Banks explore international partnerships and innovative financing methods but remain constrained by ongoing cash hoarding.

The banking sector in Zimbabwe is facing a serious liquidity crisis, primarily due to a massive sum of cash being hoarded outside of formal financial channels. A recent report from the Bankers Association of Zimbabwe (BAZ) highlighted this troubling trend, which greatly hinders the sector’s ability to foster sustainable economic growth. Essentially, wealthy individuals are storing billions of dollars away in places like private safes and even under mattresses, essentially sidelining these funds from any productive economic activity.

Dr. Sibongile Moyo, who recently became the BAZ president and is also the managing director of Nedbank Zimbabwe, voiced concerns regarding the amount of money not being utilized effectively. “There is a lot of money circulating outside the formal banking system,” she stated. “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 data reveals that Zimbabwe’s banking industry has merely US$3.3 billion in deposits, but a significant portion has already been allocated. Specifically, US$1.9 billion, or about 58%, has been lent out, and 30% is tied up in statutory reserves, which leaves a scant 12% available for daily liquidity needs and interbank settlements. Dr. Moyo stressed that this situation is unsustainable, saying, “This is a very small pool from which to lend.”

The structure of the deposits complicates matters further. Over 70% of these funds sit in current accounts, which means they can be withdrawn at any moment. This is problematic for banks that need stable deposits to fund long-term loans. Compounding these issues is a lack of a robust capital market in Zimbabwe, which positions banks as the main financial players—but they are already overstretched.

In light of these challenges, the Zimbabwean banking sector has begun to seek international funding sources to bridge the gap. Dr. Moyo mentioned partnerships with various entities, including the European Investment Bank and the African Development Bank. “These international partners have provided funding with terms ranging from five to seven years, which allows us to better support long-term projects and capital investment by our clients,” she explained.

Moreover, some foreign lenders are now opting to finance Zimbabwean corporations directly, with local banks serving as co-financiers, which helps in structuring these deals. There is also significant potential in the housing market, as real estate transactions predominantly occur in cash, with almost no mortgages available. This limits investment mobility. Dr. Moyo pointed out, “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.”

Seeking alternatives, banks are also delving into value chain financing, especially in sectors like agriculture and horticulture. This approach could stabilize funding without solely relying on traditional cash loans. However, the overarching issue remains: unless significant funds are brought back into the formal banking environment, Zimbabwe’s economic growth will be severely stunted.

Zimbabwe’s banking sector is currently trapped in a liquidity crisis, heavily influenced by individuals hoarding cash outside the formal banking system. Despite banks reaching out for international support and exploring innovative financing strategies, the persistent trend of cash hoarding poses a serious threat to long-term economic development. If measures are not taken to reintegrate this capital, the country’s financial system could remain crippled, ultimately impacting its economic future.

Original Source: www.thezimbabwemail.com