INTERBANK lending in Zimbabwe has slowed markedly, with activity in the local currency market registering a particularly sharp decline.
The trend is raising fresh questions about liquidity distribution and the underlying stability of the banking sector, businessdigest can report.
Interbank lending enables banks to lend to one another, typically overnight or over short tenors, to manage day-to-day cash flows and meet regulatory requirements.
Bankers attribute the current slowdown largely to the introduction of the Zimbabwe Gold (ZiG) currency, which is in limited circulation under a restrictive monetary policy framework.
With the ZiG not yet widely perceived as a reliable store of value, institutions are prioritising defensive liquidity management over placing funds in the interbank market.
In an interview, Bankers Association of Zimbabwe chief executive officer Fanwell Mutogo confirmed that while the interbank market remains operational, trading volumes are severely depressed.
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“Interbank lending is currently active but operating at very low levels. This suppressed activity is primarily caused by the transitory nature of deposits. The majority of deposits in the market are short-term and highly volatile,” he said.
“Banks are compelled to hold onto cash rather than lend it to peers because they fear sudden customer withdrawals. They cannot lend money out when they cannot guarantee the deposits will remain on their books.”
This caution persists despite strong growth in total banking sector deposits, which rose to ZiG112,8 billion (US$4,18 billion) as at June 30, 2025, a 158,7% annual increase from ZiG43,6 billion (US$3,18 billion) recorded in the same period in 2024.
Mutogo pointed to a structural mismatch in the market.
“Surplus banks (lenders) are only willing to lend for very short periods to minimise risk, while deficit banks (borrowers) typically require longer-term funding. This gap prevents trades from closing, resulting in low market liquidity,” he explained.
Analysts link the short-term nature of deposits to persistently low confidence in the financial system, with many depositors opting to hold physical cash, a phenomenon commonly dubbed the “Mattress Bank of Zimbabwe”.
Previous central bank research estimated that the informal sector holds about US$2,5 billion in cash outside the formal banking system. Adding to these concerns are ongoing government discussions around full de-dollarisation by 2030.
These have prompted banks to conserve liquidity as they seek to strengthen balance sheets ahead of anticipated future lending in the local currency.
The Reserve Bank of Zimbabwe (RBZ) has also noted the paradox of subdued interbank activity despite the presence of incentives.
“What we encourage banks to do is to trade with each other,” RBZ deputy governor Innocent Matshe said.
“We have our assumptions on why they are not trading with each other, but it does not make sense for bank A to have excess liquidity and bank B to be borrowing overnight when, in fact, bank A can lend to bank B and make a return because when we mop it in NNCDs (Non-Negotiable Certificates of Deposit), it is at zero.
“So, there is an incentive for them to trade with each other. I would not want to speculate, but what we know is they are not trading with each other.
“If it is an issue that the Reserve Bank can resolve, it is not a problem. We can do it. But we will not compel them because our belief is that the market needs to work so that we have allocative efficiency,” he added.
Matshe cautioned that sustained central bank intervention would risk distorting market dynamics.