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Six banks dominate the market

ZIMBABWE’S liquidity remained concentrated in six banks, which accounted for around 75% of total deposits in the past year, according to a new Reserve Bank of Zimbabwe (RBZ) report.


The trend compares favourably with developments in other African markets, where a few banks dominate the deposit market share.

But some experts are worried that the big gap between large and small financial institutions discourages banks’ willingness to trade with each other.

“The liquidity, however, remained concentrated in six banks, which accounted for around 75% of the total,” said the RBZ in its annual report for 2019 released recently.

“Average monthly banks’ balances were $2,89 billion (about US$35 million) in 2019 compared to $1,97 billion (about US$25 million) in 2018,” the report said.

Zimbabwe has a total of 19 banking institutions, including 13 commercial banks, five building societies and one savings bank.

During the period under review, the report notes that the central bank continued to use the 7% savings bonds and statutory reserve requirements as the main instruments to mop up excess liquidity.

It said the outstanding balance for savings bonds was $1,9 billion (about US$25 million) on December 31, 2019, down from $2,2 billion (about US$27 million) in 2018.

A total of $3,24 billion (about US$40 million) worth of savings bonds had been rediscounted through the discount window facility by 31st December 31, 2019.

The statutory reserve ratio, which was reintroduced in November 2018, remained at 5%, with a total of $918 million (about US$11,3 million) sitting in the statutory reserve account as at December 2019.

The bank rate was increased from 15% to 50% in June 2019 and further to 70% in September 2019.

However, in an effort to stimulate lending to productive sectors of the economy, the bank rate was reduced from 70% to 35% in November 2019.

“There was a slowdown in the disbursement of targeted facilities, at $312 million (about US$4 million) by the end of the year. The targeted facilities included export finance business linkages, horticultural promotion, tourism and women and youth empowerment,” it reads.

A banking expert who requested anonymity said even though there was nothing unusual about a few banks dominating the market, there was a need for the central bank to come up with a policy that promotes interbank trading to balance the equation.

“There is nothing surprising about that, in fact when you look at even around Africa, your concentration of liquidity is seated with few banks,” he said.

“So it’s nothing unusual. For example, when you look at markets like Mozambique you find out it’s possible that your first three banks will control 60 to 70% of the market, in terms of deposits, loans and balance sheets size,” the expert said.

Zimbabwe’s banks face multiple pressures including potentially damaging high default rates and Covid-19 induced storms, as they negotiate their trickiest phase since the domestic financial crisis a decade ago, according to the Banks&Banking Sector survey.

But in a sobering analysis, the survey said the virus induced slowdown, which added to an already fragile terrain, will be followed by a painfully slow recovery potentially highlighted by high non-performing loans (NPLs).

The report said these will be underpinned by a string of factors, including the resurgence of the previously free-falling Zimbabwe dollar and tepid growth in hardest-hit but vital economic sectors like tourism and logistics.

The survey warned that in the age of corona, banks that will lend recklessly will fall into a vicious trap, and will emerge with red noses.

Bank CEOs were probably aware of the hard knocks ahead.

But they have already injected $18,35 billion (about US$22 million) to prop up failing firms since the virus exploded in March.

While these interventions may have been to their most reliable clients, the report warned financial institutions to pursue an extremely ‘cautious step’ to skirt risks as the storms are still lurking.

“Pockets of risk are growing,” said the survey, a product of the Zimbabwe Independent, in partnership with First Capital Bank.

“Though officials reported aggregate banking soundness, indicators do not raise major red flags, they mask vulnerabilities specific to a dollarised system hence the need for dual lending. Likewise, a significant variation in prudential indicators across individual banks is key. (For instance) as the local currency appreciates, there is a danger that borrowers will struggle to repay loans leading to banks sitting on huge NPLs,” it warned.

In Mozambique three banks control between 60% and 70% of the deposit market share, as well as the loans advanced to the market.

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