AT the heart of any banking system lies a simple yet critical function: financial intermediation. Banks collect deposits from savers and channel them to borrowers at profitable interest rate spreads.
For this model to thrive, however, currency stability is paramount.
Without it, depositors hesitate to save, fearing that inflation could erode the value of their money faster than the returns offered by banks.
In Zimbabwe, persistent currency volatility has long undermined financial intermediation. From the bond note era to today’s ZiG framework, banks have navigated spikes in inflation, shifting regulatory policies and the uncertainties of monetary policies.
Historically, local currency lending was severely undermined by hyperinflation, forcing banks to increasingly operate in United States dollar (USD), often on a short-term or transactional basis.
This reliance on hard currency pushed institutions to generate a significant portion of revenue from non-funded income, including fees and commissions, rather than traditional lending.
Currently, with the Reserve Bank of Zimbabwe tightening liquidity and stabilising the parallel market premium, inflationary pressures have eased.
The regulator is steering banks back toward their core function of lending, prompting key questions: Will deposits in both USD and ZiG grow meaningfully, or will banks remain dependent on external credit lines?
- Mavhunga puts DeMbare into Chibuku quarterfinals
- Bulls to charge into Zimbabwe gold stocks
- Ndiraya concerned as goals dry up
- Letters: How solar power is transforming African farms
Keep Reading
Will banks expand lending enough for net interest income to become the primary driver of revenue?
The answers are not only pivotal for the sector’s profitability but also for the overall health of Zimbabwe’s financial system.
The questions above are critical, as a review of most local banks shows that lending in recent years has relied more on external lines of credit than on deposits, with funding primarily directed towards exporters or companies with solid USD revenue streams.
A review of half-year (HY25) results for CBZ, FBC, NMB, and First Capital Bank (FCB) provides valuable insights.
All four banks reported growth in core income lines, yet their revenue compositions differ markedly.
CBZ’s non-interest income (ZiG1,88 billion) more than doubled its interest income (ZiG973 million), while NMB’s fees and commissions (ZiG623 million) were nearly three times its net interest income.
FBC and FCB, by contrast, leaned more heavily on lending, although both experienced rising impairments. FBC’s credit losses jumped to ZiG112 million from ZiG16 million the previous year, while FCB’s doubled to US$2,9 million.
Functional currency and reporting currency adds another layer of complexity. FCB, NMB, and CBZ have the USD as their functional currency, while all of FBC’s Zimbabwean subsidiaries use the ZiG as both their functional and presentation currency, except for FBC Crown Bank.
The functional currency reflects the underlying economic environment in which each bank operates and forms the basis for financial reporting.
Interestingly, despite operating in ZiG, FBC is pursuing external credit lines of over US$50 million to diversify funding, as liquidity remained tight during the half-year and deposits were largely transitory in nature.
Cost management across these banks also reveals diverging trajectories. FCB improved its cost-to-income ratio from 55% to 48%, signalling efficiency gains, while CBZ stands at 56%.
FBC’s ratio jumped sharply to 66% from 32% in the prior year, reflecting restructuring efforts, and NMB rose to 84%, indicating higher operational costs amid digital expansion.
FBCH’s HY25 results reflect a strategic shift from property-driven gains toward core banking, with strong growth in net interest income (up 92%) and fee income (up 244%) driving improved earnings quality.
However, deposit mobilisation remains a challenge. Despite total income declining 9% to ZiG1,9 billion due to lower revaluation gains, profit after tax doubled to ZiG1,2 billion on the back of stronger transactional revenues. Elevated impairments and a weaker cost-to-income ratio (66%) highlight ongoing execution risks.
Strategically, the banks are taking varied approaches. FCB, buoyed by reputational goodwill, appears to lead in deposit mobilization and lending.
NMB is aggressively expanding into digital banking and fintech through platforms like Xplug Solutions, while CBZ continues to rely heavily on non-interest income streams.
FBCH is shifting away from property-related revenue toward core banking, balancing growth in lending and fees with the challenge of higher operating costs and impairments.
Despite these positive movements, the sector’s long-term recovery hinges on one critical factor: trust. Depositor confidence is the cornerstone of financial intermediation. Without a clear and credible roadmap from the RBZ on de-dollarisation and strategies to address Zimbabwe’s cash-dependent culture, banks may continue to rely disproportionately on fees and commissions rather than lending.
Yet there are signs of cautious progress. FCB’s success in deposit mobilisation provides a roadmap for peers. As digital solutions expand and banks gradually rebuild confidence in local currency deposits, the sector may witness a gradual shift back toward traditional banking.
Over time, more institutions may catch up in attracting deposits, increasing lending, and relying less on non-interest income.
In conclusion, Zimbabwean banks are at a crossroads. While regulatory stability and innovative strategies are creating opportunities, restoring trust remains the sector’s most formidable challenge. The path toward robust financial intermediation will be gradual, requiring careful coordination between banks, regulators, and the public. The ultimate test will be whether Zimbabweans are willing to place their trust and their money back into the banking system.
Taimo is an investment analyst with a talent for writing about equities and addressing topical issues in local capital markets. He holds a First Class Degree in Finance and Banking from the University of Zimbabwe. He is an active member of the Investment Professionals of Zimbabwe community, pursuing the Chartered Financial Analyst charter designation.
