Zimbabwe: Banking Sector Confidence Critical to Attract Savings

Senior Business Reporter

Financial sector policies should drive confidence in local banks if they are going to effectively play their financial intermediary role, experts have said.

This was one of the key outcomes of this year's Zimbabwe Finance Conference hosted by Financial Markets Indaba in partnership with Business Weekly.

Discussants said banks are fundamental to domestic savings mobilisation, but low confidence in the sector was undermining that role.

"There is need for confidence in the banking sector, and that confidence will attract savings, which are critical for the economy," said Barings Asset Management director Brian Mangwiro in his contribution.

"Without these savings, companies are forced to borrow externally, and with current sovereign risk, these borrowings tend to be very expensive. So it becomes a vicious cycle. Policies for the financial services sector need to increase confidence," he said.

Zimbabwe's financial services sector has in the past been hit by periods of hyperinflation and currency changes, with the burden of value loss absorbed by the banking public.

This has worked to weaken confidence in the sector, argued analysts.

Nyaradzo Group funded the conference that was officially opened by Zimbabwe's Ambassador to Britain, Retired Colonel Christian Katsande.

The conference discussed wide ranging issues and key among the topics included; status of Zimbabwe Economy, the Banking Sector: Financing Challenges & Key Solutions, Capital Markets and the Zimbabwe Stock Exchange, Fintech, Innovation and Remittances and the Zimbabwe Insurance Industry.

As recently as 2019, the Zimbabwe dollar was re-introduced after a 10-year hiatus through Finance Act No.2 of 2019 and Statutory Instrument 212 of 2019, which provide for exclusive use of the Zimbabwean dollar to settle all domestic transactions, as well as penalties for failure to do so.

Adjustments have since been made to allow for United States dollar transactions.

Commercial attorney, Chipo Mafunga, told the Zimbabwe Finance Conference that the country's financial policies need to be better aligned.

"The current financial market policies are fragmented. There are many policies that affect the sector, but they are not necessarily working in unison.

"A more unified policy will create a level playing field for players in the sector," she said, adding that local financial institutions need to be more proactive in the development of policies that directly affect them.

"Banks must lobby for more comprehensive financial sector policies. There is need for a stable policy environment with effective institutions, as this will create clarity on how organisations and individuals should operate."

Reserve Bank of Zimbabwe (RBZ) principal economist, Dr Nebson Mupunga, said the central bank's interventions are focused on ensuring that the local financial services sector can effectively provide capital to key economic players.

"From a central bank perspective, we focus on binding constraints and try to address these issues. From our studies we have seen that capital is a significant constraint in our case.

"With regards to Monetary Policy interventions, the following are some of the recent measures taken and being implemented by the Bank: statutory reserve requirements for demand and call deposits set at 5 percent up from 2,5 percent, while reserve requirements for time deposits remain at 2,5 percent to promote long-term deposits.

"The RBZ is also administering term lending facilities to provide affordable finance to the productive sectors, including SMEs," said Dr Mupunga.

Zimbabwe banking sector is characterised by well capitalised banking institutions with average capital adequacy ratio of 30,04 percent above the regulatory limit of 12 percent, but still needs to recover lost public confidence.

He said it was impressive that the Non-Performing Loans (NPLs) had generally improved to as low as 0,36 percent from a high of 10 percent, adding that the figure (0,36 percent) was way below internationally accepted 5 percent.

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