Cash Hoarding Chokes Zimbabwe’s Banks

The Bankers Association of Zimbabwe (BAZ) has raised concern over billions of dollars being hoarded outside the formal financial system by wealthy individuals, a practice that is depriving banks of essential liquidity needed for long-term lending.

According to BAZ, these individuals have effectively become de facto banks, storing large sums of cash in vaults, safe boxes, and even under mattresses.

Sibongile Moyo, the newly appointed BAZ president and managing director of Nedbank Zimbabwe, said:

…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.

Zimbabwe’s entire banking sector holds just US$3.3 billion in total. Of this amount, a significant 58%, equivalent to US$1.9 billion, has already been issued as loans.

An additional 30% is locked in statutory reserves and regulatory requirements, leaving only 12% available for day-to-day liquidity needs and interbank settlements. Said Moyo:

Our members are 19 banks, 14 of which are commercial banks, most of which are relatively large.

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.

So look, the entire market only has US$3.3bn of deposits, which is a very small pool from which to lend.

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.

Moyo noted that the current structure of market deposits makes long-term lending virtually impossible. She said:

There is no capacity to lend long term because of three reasons. 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.

Moyo said that, as a result, the banking industry has turned to external lines of credit to extend its lending capacity beyond the limitations of the domestic deposit base.