Safe, sound and still short of credit: the dilemma at the heart of Zimbabwe's banking sector

The Banking Industry Competition, Efficiency and Stability in Zimbabwe study by the Zimbabwe Economic Policy Analysis and Research Institute (ZEPARI), shows a banking system that passes most safety tests but lends very little.

A sector that looks healthy
Ask a regulator whether Zimbabwe's banks are in good shape and the numbers back a confident answer. At the end of December 2025, the sector's average capital adequacy, Tier 1 capital and liquidity ratios were all above the regulatory minimums of 12%, 8% and 30%. Every bank met the minimum capital requirement. Non-performing loans, the share of loans that borrowers are failing to repay, have stayed below 5% since 2019.
On paper, this is a banking sector that can absorb shocks.
Now ask a small manufacturer, a farmer or a young entrepreneur whether they can get a loan, and the answer is often very different. That gap is the puzzle the ZEPARI study documents. The banks are safe, but they are doing less of what banks exist to do: take in savings and lend them out to people who can put them to productive use.
 

What the numbers show
The study's own figures show how far lending has retreated.

• Deposits have shrunk relative to the economy. Bank deposits fell from about 40% of GDP in 2018 to about 8% in 2025.
• Credit to the private sector is thin. Private sector credit stayed below 10% of GDP between 2018 and 2025, down from around 16% in 2017. The study notes that this left Zimbabwe with lower financial depth than other SADC countries, even though banks were well capitalised.
• Banks have moved away from lending to earn their income. In 2025, non-interest income, such as fees, commissions and gains from revaluing assets, made up 58.0% of total banking sector income.

The study also reports that although banks' total assets in local currency rose after 2019, this was mostly revaluation gains. In real terms, asset values fell because of currency depreciation and rising inflation. To protect value, banks put more money into real property and leaned on fee-based business.
 

Why lending dried up
The study gives several reasons, and they feed into each other.

1. Inflation and exchange-rate swings. When prices rise fast and the currency is unpredictable, both lending and saving become riskier. The study ties the post-2018 fall in deposits to renewed inflation, exchange-rate volatility, bank branch closures and negative public sentiment. People who lose trust in the banking system keep their money elsewhere, and a bank with fewer deposits has less to lend.
2. Reluctance to lend in local currency. The study lists banks' unwillingness to lend in local currency among the causes of weak private sector credit, alongside the high cost that inflation adds to lending.
3. Bad loans among borrowers. Overall non-performing loans are low, but the study notes that individuals and corporates, particularly in the manufacturing sector, saw their NPLs rise. Banks that have been burnt become cautious.
4. Low incomes and tight access to credit. Weak incomes limit demand for loans and the ability to repay them. The study also points to constraints on accessing credit.
5. Missing financial infrastructure. Under the multicurrency period the study describes the absence of an active interbank market and of an effective lender-of-last-resort facility. Both made banks more careful about extending credit.

The cost of borrowing and banking
The study offers a further clue in how efficiency changed. The cost of bank intermediation, measured by the gap between lending and deposit rates, rose significantly from 2015 to 2023. The study links higher overhead costs to a high cost of intermediation that leads clients to avoid financial services.

It also makes a careful point about profits. Banks reported higher profits from 2009, peaking in 2023, driven by interest income and revaluation of assets. But for 2019 to 2024, the study says traditional efficiency measures did not necessarily reflect real production efficiency. They reflected high bank charges and high lending interest rates. In other words, strong profit figures do not automatically mean the banking system is serving the economy well.

By 2025, returns had fallen as the currency stabilised. The study notes a significant drop in revaluation income between December 2024 and December 2025, which it reads as less reliance on foreign exchange gains in a more stable Zimbabwe Gold (ZiG) environment.

Competition faded too
The study measures competition using the Boone Indicator, a tool that checks whether more efficient banks actually win more business. It found two phases:

1. 2013 to 2017: competition rose in the loans market. Banks pushed hard to grow their client base by offering loans, which expanded their assets and profitability.
2. 2018 to 2025: competition declined. The study attributes this mainly to weaker demand for personal and business loans, and to banks becoming cautious about new lending after the significant rise in non-performing loans.

The market is also concentrated. As of 31 March 2026, the six largest banks accounted for 73.6% of total deposits, 72.5% of loans and advances, and 70.1% of banking sector assets. One domestically owned bank held more than 30% of total banking assets. The HHI, a standard concentration measure, averaged 1,135 over the period, which the study describes as a moderately concentrated market.

Why this matters for stability too
The study's central finding is that stronger competition is associated with more banking stability. It tested this on bank-level data covering 2012 to 2025, and the result held across all model versions. Competition shifted market share toward more efficient banks, which improved the system's resilience.

That makes the post-2017 slide in competition more than a question of access to loans. If competitive pressure supports stability, a sector that competes less and lends less is missing a source of strength, even if today's capital ratios look comfortable.

The same analysis found that inflation significantly weakens bank stability, while economic growth strengthens it. Larger banks, faster asset growth and more non-performing loans were all linked to lower stability.

Hidden vulnerabilities
The study does not claim the sector is free of risk. Despite high capital and low reported NPLs, it flags several concerns:

• Large net open positions linked to blocked funds. These are liabilities from the 2019 currency conversion, when the Government decided to compensate stakeholders for losses on cash flows that could not be repatriated because of foreign currency shortages.
• Non-standard loan classification with inadequate provisioning.
• Illiquid long-term government bonds.
• Revaluation issues with foreign currency loans.
• Limited lending activity by banks.

It also observes that growth in banks' core capital after the 2019 reintroduction of the local currency came mainly from revaluation gains on foreign exchange assets and investment properties, which is a different thing from earning capital through lending.

What the study recommends
The study is clear that the answer is not to loosen prudential rules. It proposes a combination of measures:

• Better credit information. Expanding credit information sharing, including the Credit Reference Bureau, would reduce what lenders do not know about borrowers. With better information, banks can price risk more accurately and compete on pricing and service instead of avoiding lending altogether.
• Digital banking and fintech. Greater payment system interoperability and fintech partnerships can raise competition, widen financial inclusion and improve efficiency without compromising prudential standards.
• Competition through efficiency, not just more licences. The study argues policy should focus on efficiency, innovation and service quality, and keep appropriate licensing standards, instead of simply increasing the number of banks.
• Risk-based supervision. Capital and liquidity requirements should match each bank's size, complexity and risk profile, which would still let well-managed smaller banks compete in suitable market segments.
• Diversified income, with lending at the core. The study recommends that banks broaden their revenue through digital services, transaction banking, trade finance and advisory work, to improve earnings resilience. This sits alongside the Reserve Bank's caution, quoted in the study, that sustainable profitability needs a stronger contribution from core lending supported by prudent credit expansion and better asset quality.
• Macroeconomic stability. Low and stable inflation, predictable monetary policy and exchange-rate stability underpin everything else, because they reduce uncertainty and improve credit allocation.

The bottom line
Zimbabwe's banks have shown they can hold capital, stay liquid and avoid a surge in bad loans. The next test is whether they can rebuild the trust, the deposits and the competitive pressure that turn a sound banking sector into one that grows the economy.

The ZEPARI study suggests the way forward is a healthier mix of stable prices, better information on borrowers, more digital and efficiency-driven competition, and supervision that keeps pace. Safety matters. But a banking system that is safe and lends little has solved only half the problem.

By Decent Moyo