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.

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.

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:

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:

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:

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