Cash-Hoarding Cripples Zimbabwe Banking Sector
Zimbabwe’s banking sector faces a severe liquidity crisis as wealthy individuals hoard billions outside the formal financial system. Dr. Sibongile Moyo of the Bankers Association of Zimbabwe highlights the adverse effects, stating that money in private safes is effectively unusable for lending. The banking industry struggles with only 12% of deposits available for daily needs. International partnerships and value chain financing strategies may offer some solutions, but the ongoing cash hoarding issues persist.
Zimbabwe’s banking sector is facing overwhelming pressure due to a liquidity crisis stemming from individuals hoarding substantial sums of money outside formal financial institutions. Wealthy citizens have been keeping billions of dollars in private safes and other non-banking venues, effectively removing these funds from circulation. The Bankers Association of Zimbabwe (BAZ) has brought this concerning issue to light, stressing the detrimental effect this behavior is having on the country’s economic growth.
Dr. Sibongile Moyo, the newly installed president of BAZ and managing director of Nedbank Zimbabwe, pointed out that a significant portion of financial assets is simply not functioning within the formal banking system. “There is a lot of money circulating outside the formal banking system,” Dr. Moyo stated, highlighting how individuals resemble banks themselves, often holding more cash than the banks can manage. “That money is not working for the economy because we can’t use it to lend.”
The recent data indicates that the total deposits managed by Zimbabwe’s banking sector is around US$3.3 billion. Alarmingly, US$1.9 billion—about 58% of the total—has been allocated to loans, while a significant 30% is held in reserve, leaving only a meager 12% for daily liquidity and interbank transactions. “This is a very small pool from which to lend,” Dr. Moyo remarked.
Compounding these issues, over 70% of the deposits in banks are current accounts, which means they consist of short-term funds that depositors can withdraw anytime. The short-term nature of these funds limits their availability for long-term loans. Additionally, the lack of a robust capital market in Zimbabwe means that banks are the primary, and often overburdened, source of financing for economic activities, making the cash hoarding problem even more serious.
In light of these challenges, many banks in Zimbabwe have sought assistance from international lenders, forging partnerships with various financial institutions, including the European Investment Bank and the African Development Bank. Dr. Moyo explained that these collaborations have opened doors to long-term credit lines, which could be crucial for supporting extended projects.
External funders are now even opting to lend directly to local businesses, with banks acting as co-financiers or facilitators instead. This shift could bring about a fresh approach to funding.
Moreover, the cash-driven housing market creates a unique opportunity to unlock capital. Due to the current absence of mortgage systems, most home purchases are made in cash, resulting in billions of dollars being tied up in real estate. Dr. Moyo highlighted that “Every house you see was bought with cash. There are no mortgages,” and the development of a mortgage system could significantly redirect funds toward business and economic initiatives.
To further lessen the reliance on conventional lending practices, banks are looking into value chain financing, particularly in sectors like agriculture. This method involves providing guarantees and management tools instead of cash loans. Despite these innovative approaches, Zimbabwe’s banking sector continues to face hurdles. The ongoing trend of individuals hoarding cash remains a significant barrier. Without a reintegration of funds into the formal banking landscape, Zimbabwe’s financial institutions will struggle to provide the necessary support for long-term economic development.
In summary, Zimbabwe’s banking sector is grappling with a liquidity crisis largely fueled by the significant amount of cash being hoarded outside the formal financial system. Dr. Sibongile Moyo emphasizes the need for a new approach to capture these funds while seeking international partnerships for long-term financing. The current situation, with many individuals utilizing cash for home purchases and the absence of mortgage systems, further complicates the matter and constrains economic growth. A rigorous reintegration of these locked assets is essential for revitalizing the banking sector and supporting Zimbabwe’s economy.
Original Source: www.thezimbabwemail.com
