ZIMBABWE’S banking sector has not been spared by economy-wide problems confronting the country. As the country prepared for a new era this week with the inauguration of President Emmerson Mnangagwa for his second term, our senior business reporter, Melody Chikono (MC), spoke to recently elected Bankers Association of Zimbabwe (BAZ) president Lawrence Nyazema (LN), who says bankers were working out plans to drive Zimbabwe back to boom times. Below are the experts of the interview:

MC: You were recently elected as the BAZ president. Congratulations. May you kindly take us through what you desire to accomplish during your tenure?

LN: As the Bankers Association of Zimbabwe (BAZ), we seek to contribute significantly to the stabilisation and expansion of our economy. Financial institutions play a crucial role in the transmission of the monetary policy, which is an essential instrument for achieving economic growth.

We seek to efficiently carry out banking functions, such as safeguarding depositors’ funds, transferring value locally and internationally in a timely and cost-effective manner, providing reasonably priced funding to businesses, consumers, homebuyers and property developers, and providing sound financial advice and related financial services, such as insurance.

The industry will prioritise financial inclusion and the provision of financial services to small and medium-sized businesses and disadvantaged communities.

Given the need to preserve the environment and sustainably expand the economy, climate change financing will receive equal consideration.

Keep Reading

MC: What could be the drawbacks to this?

LN: My view is that most of the potential drawbacks, such as unexpected policy changes, high levels of inflation and exchange rate volatility have effectively been dealt with.

The current stable environment is conducive for the execution of normal banking activities that enhance economic growth.

MC: Banks have been struggling with confidence issues. How will you navigate through this?

LN: The sector’s confidence has been impacted by challenges surrounding the cost and accessibility of financial services, lack of attractive interest rates or incentives on deposits and savings and the high costs associated with borrowing.

Financial institutions are spearheading the implementation of cutting-edge, cost-effective digital platforms and solutions to address the expenses associated with traditional banking services.

The anticipated decline in global and local inflation is poised to yield a favourable outcome of reduced funding costs in the medium term.Some customers have raised concerns about the possibility of policy changes on the use of multi-currencies.

Authorities resolved this issue by legalising the use of multi-currencies up to the end of 2025. A well-defined strategic plan outlining the potential extension of this period or the reintroduction of mono-currency upon the achievement of predetermined milestones will undoubtedly bolster market confidence.

MC: What other challenges are being faced by banks?

LN: The challenges that are impacting the rest of the economy,such as currency depreciation and inflation are also having an impact on the industry.

On the other hand, these are being addressed at the appropriate levels, and BAZ is consistently contributing policy advice and feedback.

MC: What strategies have you used to address challenges in the sector?

LN: Advocacy for specific policies and the provision of relevant recommendations to monetary and fiscal policies and general economic management. We are generally encouraged by the progress made towardsthe re-engagement of international partners and debt resolution because these are essential in securing favourably structured lines of credit and engaging more correspondent banks.Secondly, adherence to all applicable laws and regulations. Thirdly,educating customers, mostly through individual financial institutions, about changes in policy and how those changes affect them.

MC: The central bank has revised the bank policy rate back to 150%, from 140%.What is your comment?

LN: This action was taken as part of decisive measures by the central bank to confront persistent pressures for inflation and it appears that these policies have begun to bear fruit.It should also be underlined that policy tightening is not unique to Zimbabwe.

Central banks all over the world have raised policy rates to record high levels in an effort to cool rising inflationary pressures. It would appear that the move was successful based on the fact that both global and domestic inflation have decreased.

Increased interest rates lead to a greater cost of money, which, in turn, results in increased costs for customers.

In order to reduce the number of past due loans that are a direct result of customer’s inability to meet the demands of high interest rates, the sector's credit and interest risk management would need to be improved.

MC: What else must be done?

LN: We are of the opinion that the current historically high interest rates are only a temporary measure that ought to be changed as the underlying fundamentals of the macroeconomy continue to improve. This would, in turn, present the industry with new risks and opportunities.

MC: What has been the effect of the Zimbabwe Asset Management Company (Zamco)’s mopup of non-performing loans (NPLs)?

LN: As can be seen in the graph, the average NPL ratio in the industry has been below 5% since 2019. This is excellent performance in credit management by local bankswhich is comparable with global benchmarks. We do not need an intervention similar to Zamco. Banks should remain prudent and conservative in lending activities to safeguard depositors’ funds. Those with troublesome non-performing loans will have to provide for them from profits or capital.

MC: Agriculture and mining are the country's forex generation backbones. What is your comment on banks’ capacity to support these two sectors?

LN: There are businesses and clients in these sectors that are self-sufficient, some that have direct access to international markets and others that rely on local markets for capital.

The industry has provided a variety of solutions for these two main economic drivers, including direct loans for capital expenditure and working capital as well as mortgages for the employees in these sectors, especially mining.

In recent years, the proportion of loans to the mining and agricultural sectors has increased to 13% and 19% respectively, demonstrating the industry's growing capacity and ability to support the sectors.

However, greenfield mining and agricultural projects require significant capital, so it is essential for local banks and promoters to raise additional funding externally to increase the pace of execution of pipeline projects.

MC: I understand that the sector now only has two correspondent banking relationships.What is your comment on this?

LN: I assume you are referring to direct United States dollar correspondent banks. This could be correct as a number of international banks have drastically reduced the number of banks that they clear for in major currencies.

This was to reduce potential fines by regulators over issues, such as money laundering and facilitating transactions for blacklisted or sanctioned entities. Most local and regional banks effect international transfers through third parties, whichregrettably, adds to the cost as well as turnaround time.

We are grateful to institutions such as FNB South Africa and Afreximbank (African Export–Import Bank), among other who have provided cross-border payment solutions in major currencies such as United States dollars, British pounds, South African rands, and euros to local banks.

MC: What is the outlook?

LN: Core sectors that drive the main economic activities, such as mining, services, tourism, and agriculture are expected to grow.

Given the strong link between banks and economic growth, increased activity in these key sectors should result in increased opportunities for the industry.

Economic and currency stabilisation measures introduced by government have largely been successful,giving our industry confidence to look for resources locally and externally to fund opportunitiesand deploy capital into the development of innovative solutions to enhance the banking experience.