At the recent 2025 Monetary Policy Statement presentation, Reserve Bank of Zimbabwe (RBZ) Governor, Dr John Mushayavanhu, advised banks to unwind some investment positions to free up loanable funds.
His remarks, intended to dispel concerns over a liquidity crunch, have now sparked a spirited response from Lawrence Nyazema, president of the Banking Association of Zimbabwe (BAZ), who warned that banks must maintain a strict separation between customer deposits and proprietary capital investments.
At the presentation, Dr Mushayavanhu emphasised the robustness of Zimbabwe’s financial reserves.
“So, we have maintained reserve money at below 4 billion ZiG,” he declared, adding that the market currently hosts around “12,4 billion, roughly let us just say 12 billion ZiG in the market.”
He explained that these deposits are supported by a reserve portfolio comprising gold, foreign currency and mineral assets, which, when converted, they total approximately 14,4 billion ZiG.
“Now, if you do your simple maths, you divide the reserves by total deposits, you will get an implied rate of 22.
“In other words, what that is telling you is that if we were to buy back all the ZiG that is in the market using the reserves that we have got, we should be able to do that at an exchange rate of 22,” he added.
This calculation was offered as a reassurance that, despite any perceived liquidity crunch, the central bank’s balance sheet remains more than adequate to support market stability.
Dr Mushayavanhu’s message was clear, banks should not claim a liquidity shortage, but rather unwind the positions they are in to liberate funds for lending.
According to him, such an approach would help ensure that the financial system operates efficiently and that banks do not unnecessarily hoard assets that could be deployed to stimulate economic growth.
However, Nyazema on the sidelines of the presentation quickly countered this view.
“Well, the way I look at it is I always separate deposits that come from the public and banks on capital,” Nyazema said.
He argued that banks must exercise caution by safeguarding customer deposits rather than leveraging them for investments.
“So, if you look at a bank like ours, we have got capital of more than US$200 million.
“So, if we take US$10 million out of that US$200 million and we invest it in a building, that should not be problematic. But if I have got half a billion in customer deposits and then I take US$10 million from the customer deposits and I go and invest in a building, I will get stuck should there be a demand by depositors who want their money back,” he said.
Nyazema was emphatic in his criticism of financial institutions that blur the lines between depositor funds and bank capital.
“The banks who use customer deposits to invest in their own assets, I would look at them as rogue banks,” he warned.
According to Nyazema, customer deposits are intended primarily to extend loans or purchase treasury bills, a strategy that enables banks to liquidate such assets quickly by discounting them if a surge in withdrawal demands occurs.
“So prudent bank management should be such that you do not take customer deposits for such purposes,” he stressed, adding that a similar principle should apply to insurance companies and asset management firms.“Most regulators now demand that we separate shareholder funds from depositor funds and investor funds. But it is not necessarily bad to have our financial institutions also investing in property and trying to maintain the quality of their capital,” Nyazema concluded.
The contrasting perspectives of Dr Mushayavanhu and Nyazema have not gone unnoticed by market analysts.
Namatai Maeresera, an economic analyst, remarked: “The Governor’s arithmetic may be mathematically sound, but it oversimplifies the intricate reality of bank liquidity management. While a 22:1 reserve ratio sounds reassuring, the operational risk of misusing customer deposits for long-term investments remains high.”
Maeresera argued that the central bank’s call for unwinding positions might force banks to liquidate asset portfolios hastily, potentially triggering a fire sale environment that could destabilise the market.
Monetary economist, Patrick Chikandi, offered a similar cautionary note.
“There is no doubt that the RBZ has the reserves to theoretically buy back all the ZiG in circulation. However, the problem lies in the structure of these deposits,” Chikandi explained.
“Customer deposits are fundamentally different from bank capital. Mixing the two can lead to systemic vulnerabilities. If banks are forced to unwind positions to meet sudden liquidity demands, they might end up selling off assets at distressed prices, thereby eroding public confidence in the financial system.”
He added that the central bank’s reliance on a single numerical metric, an exchange rate of 22 could be misleading if banks have not adequately isolated and protected depositor funds from riskier investments.
The debate highlights a broader tension within Zimbabwe’s financial sector, the challenge of balancing aggressive asset management with the need for robust liquidity safeguards.
While the RBZ’s approach is predicated on a strong reserve base, critics like Nyazema and the independent analysts stress that sound risk management must also account for the inherent differences between various types of bank liabilities and assets.As discussions continue, both sides agree that a careful recalibration of bank asset management practices is needed, one that preserves the integrity of depositor funds while still enabling banks to contribute actively to the economy.
Whether through tighter regulatory oversight or improved internal risk controls, the solution may lie in a middle ground that satisfies the RBZ’s liquidity objectives without compromising customer security. – Business Weekly
