DESPITE daily surpluses of ZiG1,5 billion since October 2024, Zimbabwe’s banking system faces a liquidity distribution problem due to banks’ reluctance to engage in interbank lending, according to Reserve Bank of Zimbabwe Governor Dr John Mushayavanhu.
In an interview with ZTN Prime on Friday, Dr Mushayavanhu refuted market assertions of tight liquidity, attributing constrained access to liquidity to moribund interbank market activity, where banks with surplus were disinclined to trade with those experiencing deficits.
The interbank market is a network of financial institutions that allows banks to trade with each other. This is crucial for managing their liquidity, exchange rate risks and fulfilling client transactions.
Dr Mushayavanhu said since October last year, Zimbabwe’s banking sector had consistently experienced daily surpluses averaging ZiG1,5 billion, indicating enough liquidity and the central bank has been absorbing excess liquidity through zero-interest, non-negotiable certificates of deposit. “What it means is that after banks have done all the transactions that they have done, there is ZiG1,5 billion that still has not been deployed,” said Dr Mushayavanhu. “So, the problem is not tight liquidity.
“The problem is that banks are not trading with each other. The central bank has been taking that excess liquidity on a daily basis and putting it into what we call non-negotiable certificates of deposits at zero interest.
“So, you have banks that are happy to have surplus money in their position taken by the central bank at zero interest, instead of lending to the bank next door and earning interest. So, that is an issue that we have to address. It’s a structural issue within the banking sector,” he added.
Dr Mushayavanhu said the RBZ’s role does not extend to compelling banks to trade with each other.
Instead, he said, the central bank’s intervention focuses on absorbing excess liquidity, which is then re-lent to other banks to ensure circulation. The Targeted Finance Facility (TFF) is one mechanism by which the central bank uses these absorbed funds to lend to banks with shortfalls for lending to clients.
Nearly ZiG161 million has been disbursed to productive sectors through the TFF, a ZiG600 million concessional loan programme launched last month by the central bank to address funding shortfalls.
The initiative was implemented following the RBZ’s assessment that commercial banks lacked sufficient capacity to meet the financing needs of industries crucial for supporting economic expansion.
Analysts observe that banks are demonstrating risk aversion by choosing to have their funds absorbed by the central bank at zero percent interest, instead of engaging in interbank lending for interest income.
“This behaviour demonstrates a clear risk aversion, where banks prioritise the safety of zero-return deposits over the potential gains of interbank lending,” said an official from the treasury department of a leading commercial bank, who requested anonymity for professional reasons.
Some banks have ceased ZiG lending, citing liquidity constraints.
However, the overall liquidity situation has disrupted business payments, causing some entities to struggle with ZiG obligations. Responding to the audience during the podcast interview, Dr Mushayavanhu warned banks withholding liquidity and preferring it to be absorbed by the Reserve Bank at zero percent interest that they would soon be required to answer to their shareholders for foregoing potential revenue.
“It’s a carrot and stick arrangement,” said Dr Mushayavanhu. “If we take money from you at zero percent, surely you have to account to your shareholders why you are not making money.
“Because the opportunity cost of you not lending that money means that you are foregoing certain income that you should be getting.
“So, hopefully, banks will work up to that. But I think it’s mostly been driven by previous perceptions on the local currency. People have always believed that the local currency will always depreciate.
“So, they will be doing their best to say if I lend money today at 35 percent and the currency is depreciating at 100 percent, I am losing money. But as the central bank, we have now walked the talk.
“We’re almost going full year. Currency is stable. And I’m sure that should force the banks to then rethink their strategies to say this currency is stable.”
In a Monetary Policy Committee review meeting between the Bankers Association of Zimbabwe and the central bank governor, the central bank advised local banks to sell some of their investments and hedging positions to raise money to meet their statutory and other obligations.
In the meeting, liquidity constraint emerged as the most pressing issue, with bankers highlighting their severe impact on lending activities and the ability to meet payment obligations.
Critically, bankers expressed concern over their inability to meet tax obligations to the Zimbabwe Revenue Authority (ZIMRA), resulting in significant penalties for non-compliance.
With March drawing near, the demand for ZiG is projected to increase, primarily due to the heightened need for funds to meet quarterly payment date (QPD) tax obligations.
Despite concerns raised by some economic players regarding liquidity crunch, the Government expressed satisfaction with the ongoing liquidity management programme designed to maintain macroeconomic stability.
In a recent interview, Finance, Economic Development and Investment Promotion Minister Prof Mthuli Ncube said the primary objective of the liquidity management programme was to safeguard the domestic currency.
By curbing excessive liquidity growth, a key driver of currency volatility, instability and, ultimately, inflationary pressures, the programme seeks to maintain macroeconomic stability.
