ANNUAL FINANCIAL
STABILITY REPORT

Table of Contents


List of Tables

List of Figures
Figure 19: Mobile Money Interoperability Volumes and Values from January to December 2021 .... 45

Acronyms
AML
Anti-Money Laundering
ALSI
All Share Index
ATP
Alternative Trading Platform
AUC
Assets Under Custody
BIC

Bank Identifier Code
CFT
Combating the financing of terrorism
CAR
Capital Adequacy Ratios
CBDC
Central Bank Digital Currency
CBI

Contributory Financial Institutions
CDD
Customer Due Diligence
CSCF
Customer Security Controls Framework
DPC
Deposit Protection Corporation
D-SIB
Domestic Systemically Important Bank
DTMFI
Deposit-taking Microfinance Institutions
EMDE
Emerging Markets and Developing Economies
EWMA
Exponentially Weighted Moving Average
FATF
Financial Action Task Force
FCA
Foreign Currency Account
FINSEC
Financial Securities Exchange
FMIs
Financial Market Infrastructures
FUM
Funds Under Management
FSI

Financial Soundness Indicators
GDP
Real Gross Domestic Product
IMF
International Monetary Fund
IPEC
Insurance and Pensions Commission
MDFSC
Multidisciplinary Financial Stability Committee
NPL
Nonperforming Loan
OFAC
Office of Foreign Assets Control
PMFI
Principles for Financial Market Infrastructures

RBZ
Reserve Bank of Zimbabwe
RTGS
Real Time Gross Settlement System
SADC
Southern African Development Community
SECZ
Securities and Exchange Commission of Zimbabwe
SWIFT
Society for Worldwide Interbank Financial Telecommunication
TCIB
Transactions Cleared on an Immediate Basis
ZICARP
Zimbabwe Integrated Capital and Risk Programme
ZSE
Zimbabwe Stock Exchange

Purpose of the Report

The Annual Financial Stability Report provides an overall assessment of financial
stability in 2021 and also provides an analysis of potential risks to financial
stability. The report also serves to promote the mitigation of systemic risks by
stimulating market participants' evaluation of the wide range of risk factors in the
financial sector in the context of developments in domestic, regional and global
environments.

This report is a product of collaborative efforts by the Multidisciplinary Financial
Stability Committee, constituted by the Reserve Bank of Zimbabwe, Insurance &
Pensions Commission of Zimbabwe, Securities & Exchange Commission of
Zimbabwe, and the Deposit Protection Corporation. The report is published
annually and selected developments up to the time of finalisation of the report
that have an impact on financial stability are incorporated.

Multidisciplinary Financial Stability Committee

GOVERNOR’S FOREWORD

1. The global financial sector has continued to register resilience to the ongoing
Covid-19 pandemic. Expansionary policy measures that were implemented at the
beginning of 2020 supported the global economy to contain global financial
stability risks during the year ended 31 December 2021.
2. In 2021, a number of Central banks reversed the accommodative monetary
policies by increasing interest rates in order to restrain the rising inflationary
pressures. Under these circumstances, global economic activity is estimated to
have increased by 6.1% in 2021 and is projected to moderate to 3.6% in 2022
(World Economic Outlook, April 2022).
3. Sub-Saharan Africa is estimated to have grown by 4.5% in 2021 and will likely
moderate to 3.8% in 2022 in line with the rest of the global economy.
4. Despite the potential risks arising from the Covid-19 pandemic and external socioeconomic factors, the Zimbabwean banking sector remained resilient as reflected
by adequate capitalisation, liquidity buffers and strong asset quality.
5. Inflationary pressures in the review period were contained through an adjustment
in the overnight accommodation rate to 60% by the end of the year. The Bank
also revised downwards the quarterly reserve money growth target for 2021 from
22.5% during the first two quarters of 2021 to 20% in the third quarter, and
further down to 10% in the fourth quarter of the year.
6. The inflation containment measures during the year 2021 promoted stability in
the operating environment and financial stability in the country, which is key for
the banking sector to support the productive sectors of the economy. The
economy is estimated to have grown by 7.8% in 2021.
7. The insurance and pensions sector remained largely sound and stable during the
period under review despite the dynamic operating environment, characterised by
increasing Covid-19 cases, inflation pressures and outstanding compensation
payments to insurance policy holders emanating from the Justice Smith
Commission of Inquiry recommendations of 2015.
8. The capital market sector remained stable in 2021 and continued to play its role
as a source of long-term funding and investment. The economic stabilisation

measures initiatives during the year positively impacted on investment returns for
both Securities Market Intermediaries (SMIs) and investors.
9. The geo-political conflict in Ukraine has, however, generated downside risks to
the global economic outlook. The supply chain disruptions in the global energy
sector and associated rise in oil prices have resulted in a knock-on effect on
inflation, especially in oil importing countries such as Zimbabwe. Such
developments raise uncertainties which will provide a real stress test to the
resilience of the financial sector in the outlook period.
10. Increased adoption of digital financial services on the back of the ongoing
technological revolution has amplified operational and strategic risks while
generating new risks, notably cyber risk. Heightened cyber risk underscore the
need to ensure operational resiliency within the financial sector.
11. In line with regional and international developments, the Bank has created a
conducive environment that promotes responsible innovation while minimising
potential risks to financial stability. A Fintech Regulatory Sandbox (the Sandbox)
was launched in March 2021.
12. The Bank is continuing to enhance financial infrastructure in order to promote
inclusive access to credit while strengthening credit risk management, with
positive impact on financial stability.
13. Financial sector regulatory authorities will continue to monitor and implement
timely policy interventions to ensure that financial stability is maintained, and this
is an imperative for attaining and sustaining economic growth in the outlook
period.
14. Finally, I would like to thank the Ministry of Finance and Economic Development,
fellow financial sector regulators and other key stakeholders for their unwavering
efforts in promoting financial stability.


Dr. J.P. Mangudya
Governor

1. RISKS TO FINANCIAL STABILITY ARISING FROM THE
MACROECONOMIC ENVIRONMENT

Global Economic Environment
1.1 The reduction in interest rates in 2020 eased financial conditions and supported
the global economy. This contributed to the estimated global economy growth
of 6.1% in 2021. Growth is, however, expected to moderate to 3.6% in 2022.
The forecasted slowdown is partly attributed to the geo-political tension in
Ukraine and rising global inflation.
1.2 Economic contraction in both Ukraine, Russia and the rest of Europe is expected
in 2022 due to the energy supply chain disruptions arising from the geo-political
tension and the lingering effects of covid-19. The knock-on effect of the geopolitical tensions is expected to negatively impact other countries through trade,
and marginally through financial interlinkages.
1.3 In 2021, in an effort to contain inflationary pressures and risks to financial
stability arising therefrom, advanced economies’ central banks tightened
monetary policies.
1.4 The policy changes, coupled with supply chain disruptions, have contributed to
lower growth forecasts in both the developed and developing countries. In the
euro area, prolonged supply constraints and the geo-political conflict in Ukraine
are expected to reduce economic growth from 5.3% in 2021 to 2.8% in 2022.

Figure 1: Global Economic Growth (%)

Source: World Economic Outlook (January 2022)

-6
-4
-2

Global
Advanced
EMDEs
Sub-Saharan

1.5 In China, disruption in the housing sector largely due to some of the largest
property developers accumulating debt amidst falling sales, contributed to the
economy’s lower than anticipated growth during the review period. With a strict
zero-Covid-19 strategy leading to recurrent mobility restrictions and deteriorating
prospects for construction sector employment, private consumption is projected
to be lower than anticipated.
1.6 The likely impact of these developments on the world’s largest economy, has
potential negative implications for trading partners’ prospects.
Elevated Inflation Expectations
1.7 Inflation is expected to remain elevated in the near term, averaging 3.9% in
advanced economies and 5.9% in emerging market and developing economies
in 2022. The geo-political conflict in Ukraine has led to a rapid increase in fuel
prices. The potential spill over effects of rising fuel prices will increase local
inflationary pressures.
1.8 Despite rapid and effective rollout of vaccination programs in most advanced
economies, vaccination programs in many emerging market and developing
economies are slow. This sluggish progress has been a contributing factor
weighing on the recovery prospects in under-vaccinated countries.
Domestic Macroeconomic Environment
1.9 The local economy is estimated to have grown by 7.8%1 in 2021 and is expected
to grow by 5.5% in 2022. The significant growth was mainly spurred by fiscal
relief measures that supported agriculture, industry and other sectors of the
economy in a bid to mitigate downside effects of the Covid-19 pandemic.
1.10 The local currency depreciated from an average of ZW$82.07/US$1 in January
2021 to an average of ZW$107.83/US$1 in December 2021. The monetary
targeting framework, aimed at restricting money supply and inflation is expected
to reduce risks to financial stability arising from exchange rate volatility in the
absence of significant negative impact from exogenous factors.


1 2022 National Budget

Figure 2 : Exchange Rate Developments (ZW$/US$)

Source: RBZ (2022)

Inflation Risk
1.11 Annual inflation was on a downward path during the greater part of the review
period to end at 60.74% in December 2021 compared to 379.26% recorded at
the end of 2020. This was mainly a result of fiscal consolidation and the
implementation of the monetary targeting framework by the central bank.
Transitory shocks arising from increases in fuel prices due to the geo-political
conflict in Ukraine will contribute to inflation dynamics in the local economy in
the outlook period.
Figure 3: Annual Inflation (%)

Source: ZIMSTAT (2022)


Monetary Developments
1.12 The monetary targeting framework has ensured that reserve money growth
remained within the set targets and, therefore, reduced pressure on the
exchange rate, supporting macroeconomic and financial stability.
1.13 The quarter on quarter reserve money growth target for 2021 was progressively
reduced from 22.5% during the first two quarters of 2021 to 20% in the third
quarter, and further down to 10% in the fourth quarter of the year. The
downward revision was a response to resurgence of inflationary and exchange
rate pressures in the economy.
1.14 These revisions in the reserve money growth target reduced reserve money to
ZW$25.49 billion at the end of December 2021, compared to the fourth quarter
target of ZW$28.9 billion.
1.15 In an effort to curb inflationary speculative borrowing, the Bank increased the
overnight accommodation rate from 35% at the beginning of 2021, to 60% by
the end of the year.
Summary of Major Risks to Financial Stability
1.16 The table below shows potential risks to financial stability and possible mitigants.
Table 1: Risks to Financial Stability
Type of Risk
Likely Impact
Risk Mitigants

Residual
Risk
Direction
of Risk
Macroeconomic Risk
emanating from

Inflationary pressures.

Low aggregate demand.

Weak Global economic
growth.

Inflation in western
economies
High
Disruption in business
operations through Covid-19
induced lockdowns
Decreased trade amongst
nations


Continued vaccination to achieve herd
immunity.
Restrict reserve money growth to 5%
Increased local production
Moderate
Stable
Foreign Exchange Risk
Emanating from
Significant disparity between
official & parallel market rates
Increasing demand for forex
as astore of value

High
Inflationary pressure

Restrict reserve money growth to 5%
Raise cost of speculative borrowing
Improve foreign currency inflows through
exports, remittances etc.

Moderate
Stable
Covid-19 Pandemic
(Health Risk)

High
Supply chain disruptions
Reallocation of resources from
development programmes
Disruption of economic
activities.
Disruptions to loan repayments
Increased Government
allocation of funds to vulnerable
groups (Increased Government
expenditure)

Promotion of use of digital platforms by
banking institutions
Encouragement of telecommuting at work
places.
Pursuit of herd immunity via vaccination of
at least 60% of the population.
Increased uptake of vaccination by
population.
Moderate
Stable

Inflation Risk
emanating from
Preference for use of USD.
ZW$ prices indexed to USD at
parallel market rates
High service charges, utility
and energy prices

High
Decrease in disposable income
& consumer purchasing power.
Increases in prices of goods
and services.
Increasing cost of borrowing

Restriction of money supply growth to
below 10% per quarter.
Allocation of FX on the auction system to
maintain price and monetary stability.
Government not borrowing from the RBZ.
SDRs allocated by IMF for productive
purposes
Increase in bank policy rate
High
Stable

Climate risks
As a result of
Climate Change & Global
Warming
Cyclones, earthquakes,
Hurricanes & droughts

Moderate
Destroys
infrastructure
and
businesses, including Financial
Institutions
Hazards raise credit, operational
& sustainability risks to financial
institutions.
Strain
fiscal
space
as
Government attempts to fund
Civil Protection Units.
Lowers production in agriculture

Promotion of Green economy
Promotion of Sustainable banking practices,
spearheaded by Central Bank
Decentralization of Civil Disaster Response
units
Moderate
increasing
Operational Risk from
Increasing digitisation
Impact of telecommuting
on risk management
Power supply bottlenecks
ICT failures.
High cost of living against
depressed wages

Moderate
Disruptions to business
processes
Increased downtime in digital
platforms
Increased bank robberies &
cash heists
People Risks in form of frauds

Telecommuting policies and procedures.
Importation of power and installation of
solar based power systems
Continuous review of wages and salaries
and offering of non-financial benefits.

Moderate
Stable
Cyber Risk from
Accelerated Digitisation for
financial services.

High
Digital platforms prone to
cyber-crimes e.g. card cloning,
pin hacking, & sophisticated
viruses
Data snooping by
hackers
Costly upgrade of Systems

Promulgation of Cyber Security & Data
Protection Act
Upgrade of cyber security systems
Public or client education campaigns
Client electronic notifications or messaging
warning of cyber-attacks.
High
Stable
Sovereign Risk as a result of
Legacy Debt Arrears
Western Political &
economic sanctions.


High
Lack of multilateral support from
Global Financial Institutions.
High cost of funds from offshore
lenders


Payment of external debt obligations.
International
reengagement
efforts
by
Government
New sources of development finance e.g.
China, AfDB
Financing from domestic resources
High
Stable

2.
BANKING SECTOR RISKS AND RESILIENCE

Overview
2.1 The stabilisation of the macroeconomic environment has provided a conducive
environment for the financial sector to continue supporting the growth of the
economy. Banking institutions generally had sufficient capital and liquidity
buffers before the onset of the Covid-19 pandemic which helped to cushion the
banking sector from the pandemic’s impact as evidenced by the solvency metrics
and other financial sector indicators.
Figure 4: Banking Sector Soundness Index2


2 See Box 1 for the derivation of the index.

Index

Figure 5: Banking Sector Soundness Index: Sub-Indices


Source: RBZ (2022)
2.2 All five Domestic Systemically Important Banks (DSIBs) were well capitalised
throughout 2021, with their capital adequacy ratios averaging 22.88% at the end
of 2021. Aggregate net income for the five DSIBs was ZW$33.63 billion in 2021.
DSIBs held 66% of the total banking sector assets and stress test results showed
that all the DSIBs were resilient to unforeseen shocks.
2.3 The figure above shows that asset quality remained satisfactory while the sector
remained adequately capitalised.


Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17
Sep-17
Dec-17
Mar-18
Jun-18
Sep-18
Dec-18
Mar-19
Jun-19
Sep-19
Dec-19
Mar-20
Jun-20
Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec-21
Capital Adequacy
Asset quality
Earnings and profitability
Liquidity
Sensitivity to market risk

In the aftermath of the Global Financial Crisis of 2007-2009, which provided ample evidence of the consequences of financial
instability, policymakers and academics have devoted resources to develop composite measures of financial stability and bank
soundness. The aim of these measures is to enable informed assessment of financial stability and banking system soundness,
and adoption of appropriate policies to mitigate the risks. In this regard, the Reserve Bank constructed a Banking Sector
Soundness Index (BSI) as a single measure of banking system soundness which gives an overall picture of the state of the
banking system. The BSI is mainly based on five CAMELS components, namely:
1.
Capital Adequacy;
2.
Asset Quality;
3.
Earnings and Profitability;
4.
Liquidity; and
5.
Sensitivity to Market risk.
The data used in the BSI for Zimbabwe is compiled from Financial Soundness Indicators (FSIs) that are available on a quarterly
basis. These are then transformed using empirical normalization to fit the data within the range of 0 to 1. The following equation
is used to normalize the ratios:
Ii =
Xi−Xmin
Xmax−Xmin

Where:
Ii is the sub-index value at point i
Xi is each data point i
XMin is the minima among all the data points
XMax is the maxima among all the data points
Xi, 0 to 1 is the data point i normalized between 0 and 1
After the normalization of each ratio, a sub-index is computed using a simple average of the normalized ratios. The formula for
this step is given below, using the capital adequacy sub-index as an example:

The overall BSI is then computed as the sum of the equally weighted sub-indices and calculated using the following equation:

Where BSIt is the value of the BSI at time t and
wr
r=c,a,e,q,s
= 1
BOX 1: BANKING SECTOR SOUNDNESS INDEX (BSI)

Banking Sector Concentration
2.4 The Zimbabwean banking sector has generally exhibited low levels of
concentration as shown by the Herfindahl-Hirschman indices in the figure below
(Refer to Box 2).
Figure 6: Herfindahl-Hirschman Index


2.5 Notwithstanding the depicted low levels, the figure above shows that the level
of concentration in the banking sector has been on an upward trend since 2017.
The Bank implemented Prudential Standard No: 1-2020/BSD: Framework
for Dealing with Domestic Systemically Important Banking Institutions
with the objective of ensuring that systemically important banking institutions
are subjected to more stringent prudential requirements.

1,106
1,115
Dec-17
Dec-18
Dec-19
Dec-20
Dec-21
HH Index
The Herfindahl-Hirschman Index is an index that measures the market concentration. It is
computed as follows
HHI= s1
2 + s2
2 + ⋯+ sn
2 = ∑si

n
i=1

Where si is a banking institution’s share of total banking sector assets.

HHI of between 1 500 and 2 500 points to moderate concentration, while HHI greater than 2
500 points to high concentration.

BOX 2: THE HERFINDAHL-HIRSCHMAN INDEX

The Interbank Network Analysis
2.6 An analysis of the Zimbabwean interbank network as at 31 December 2021
revealed moderate interconnectedness with some banking institutions not having
any deposits from other banks or lending to other banks.
2.7 The interbank network is presented in the figure below with arrows showing the
direction of the flow of credit, from the lending bank to the borrowing bank.
Figure 7: Interbank Network as at 31 December 2021


2.8 The above shows that 16 institutions had either direct or indirect connections
with other institutions. This means that shocks in one institution can be
transmitted to other banking institutions within the network. There was one
significant borrower in the network (Bank 16) as at 31 December 2021 which
had borrowings / placements from four other banking institutions.

Credit Risk
2.9 Inherent credit risk remained moderate during the year under review against the
backdrop of the disruptive effects of Covid-19 on the level of economic activity.
A combination of fiscal interventions designed to contain the covid 19 shock, as
well credit risk management enhancements by banking institutions, however,
mitigated potential shocks on asset quality.
2.10 Against this background, the banking sector depicted resilience as reflected by a
low NPL ratio of 0.94% as at 31 December 2021 against the internationally
recommended level of 5%.
2.11 Banking sector resilience to credit risk shocks was also demonstrated by stress
test results as at 31 December 2021 which showed that a minor credit shock, of
a 10% increase in nonperforming loans, would result in one bank having a capital
adequacy ratio (CAR) below the regulatory minimum of 12%. An additional two
banking institutions were vulnerable to a moderate shock of 25% increase in
nonperforming loans whilst an additional two banks were vulnerable to a major
credit shock of 40% of performing loans becoming nonperforming loans, with
their CARs falling below the regulatory minimum of 12%. Given the mitigants
outlined above and the quality of the current credit portfolios, the likelihood of
significant shocks materialising is considered low.
Figure 8: Credit Stress Test: Increase in NPLs

Source: RBZ (2022)

2.12 A sectoral analysis of the banking sector’s loan portfolio showed that most of the
loans were to agriculture (29%) and individuals (21%). The lower-than-expected
1 Bank
3 Banks
5 Banks
No. of Banks with CAR < 12%
Minor (10%) Moderate (25%) Major (40%)

rainfall during the 2021/2022 agriculture season may impact the performance of
some agriculture loans. The banking sector level of capitalisation is however,
considered adequate to absorb the potential losses from distressed agricultural
loans.
Income Generation Risk
2.13 In an environment characterised by Covid-19 related disruptions, inflationary
pressures, as well as cautious approach to lending as banks tightened credit risk
management, inherent income generation risk was moderate during the year
ended 31 December 2021.
2.14 The banking sector however demonstrated resilience as reflected by net
aggregate profit of ZW$59.29 billion for the year ended 31 December 2021,
compared to ZW$34.24 billion recorded in December 2020. The growth was
mainly spurred by a combination of fees from increased digital financial services
and lending activities, and revaluation gains on investment properties and foreign
currency denominated assets.
2.15 The proportion of interest income from loans and advances significantly
increased from 17.82% of total income in 2020, to 34.99% as at 31 December
2021, largely a reflection of enhanced financial the relaxation of Covid-19
restrictions.

Figure 9: Banking Sector Income Mix as at 31 December 2021


Source: RBZ (2022)
Interest Income from Loans
Advances and Leases
34.99%
Interest Income on Balances
with Banking Institutions
0.67%
Interest Income On
Investments and Securities
4.12%
Foreign Exchange
4.46%
Fees and Commission
31.80%
Other Non Interest Income
23.97%

The banking sector is expected to remain profitable in the outlook period
underpinned by sustainable sources of funding as shown in Figure 9 above.

Capital/Solvency Risk
2.16 Against the background of minimal shocks from credit risk as well as strong
earnings position, banking institutions had adequate capital buffers to support
banking operations and to enable the sector to continue playing its role of
providing credit to the real economy.
2.17 The figure below shows the trend in the banking sector’s capital adequacy ratio
from March 2020 to December 2021.
Figure 10: Capital Adequacy Ratio Trend: March 2020 to December 2021

Source: RBZ (2022)

2.18 The figure below shows an analysis of the distribution of banks’ CARs as at 31
December 2021.


Mar-20
Jun-20
Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec-21
CAR Ratio
Regulatory Minimum

Figure 11: Distribution of Banks’ CARs (%)

Source: RBZ (2022)
2.19 Due to the pandemic induced challenging operating environment, which the
banking sector was facing, the Bank extended the deadline for compliance with
the requirement for meeting the new minimum capital levels from 31 December
2020 to 31 December 2021. The extension gave banking institutions more time
to raise the required minimum capital meant to enhance the banks’ ability to
absorb unforeseen risks and to strengthen their balance sheets.
2.20 As at 31 December 2021, most banking institutions were in compliance with the
new minimum capital requirements effective 31 December 2021. The remaining
few banking institutions were granted up to 31 December 2022 to comply with
the minimum capital requirements. As such these institutions were not permitted
to pay dividends without prior approval of the Bank until such a time that they
have met the new minimum capital requirement.

Liquidity Risk
2.21 The banking sector had adequate liquidity holdings as reflected by the average
prudential liquidity ratio of 64.37% as at 31 December 2021, against the
minimum regulatory requirement of 30%, largely reflecting high stock of liquid
assets in the sector.
2.22 The trend in the liquidity ratio from 31 December 2018 to 31 December 2021 is
shown in the figure below.


Number of Banks
Capital Adequacy Ratio Ranges

Figure 12 : Prudential Liquidity Ratio Trend

Source: RBZ (2022)
2.23 All banking institutions remained resilient to both minor and moderate liquidity
risk shocks as at 30 December 2021, as their cash flows remained positive before
or on the fifth day of the stressful period. Only four banks were susceptible to a
major liquidity stress test as their cash flows became negative within five days
of the stressful period.
2.24 Liquidity risk is expected remain low in the outlook in light of excess reserve
holdings at most banking institutions on the backdrop of the absence of a welldeveloped bond market and hence limited availability of investment options to
deploy the excess liquidity.

Market Risk
2.25 Under the current operating environment, the banking sector’s exposure to
interest rate risk is mainly in the banking book in view of limited trading activities.
In addition, sources of funds for banks are predominantly retail deposits which
are relatively less interest rate sensitive, while re-pricing assets are mainly loans
and advances and treasury bills. Prevailing high interest rate spreads cushion
banking institutions’ balance sheets from capital erosion.
2.26 As at 31 December 2021 the banking sector had an overall asset sensitive book,
with a cumulative re-pricing gap of ZW$68.34 billion in the 1-365 days’ time
bucket meaning that assets re-price or reset faster than liabilities.

Dec-18
Jun-19
Dec-19
Jun-20
Dec-20
Jun-21
Dec-21
industry average
minimum requirement

2.27 The banking sector was resilient to interest rate shocks as revealed by stress test
results which showed that a minor shock of a 10-percentage point increase in
interest rates would result in only one (1) bank having a CAR less than the
minimum regulatory threshold. A moderate shock of a 20-percentage point
increase and a major shock representing a 30-percentage point increase in
interest rates, may result in additional three (3) banking institutions having CAR
of less than 12%. The total asset base of the vulnerable banks account for only
9.53% of the total banking sector assets.
2.28 Both monthly food and non-food inflation, which had been falling in the first half
of the year, assumed an upward trend in line with the exchange rate
developments in the second half of 2021. In this regard, the Bank increased the
policy rate to end the year at 60%, in order to curb speculative borrowing.
2.29 The banking sector’s reported net open position deteriorated from deficit of
ZW$78.71 billion in December 2020 to a deficit ZW$166.95 billion in December
2021 largely due to the depreciation of the local currency from an average of
ZW$81.81/US$1 in December 2020 to an average of ZW$107.83/US$1 in
December 2021. Stress test results, however, indicate that the banking sector is
largely resilient to potential future exchange rate shocks.
Strategic Risk
2.30 The dynamic operating landscape in 2021, exposed banking institutions to
amplified strategic and business model risks. Banking institutions reconfigured
their business models and instituted revenue enhancement and cost
rationalisation measures. Strategic risk is expected to remain moderate due to
uncertainties in the operating environment.
Operational Risk
2.31 Adoption of new technologies such as Digital payments and E-money, Big Data
Analytics, Artificial Intelligence, and Cloud Computing have been associated with
amplified operational risks as well as generation of new risks such as cyber risk.
Increasing incidences of fraud and card cloning were registered during the review
period. Banking institutions continued to enhance their information management
frameworks including adoption of EMV compliant electronic payment cards.

2.32 Operational risk remains inherently high due to the increase in volume of online
transactions which has heightened cyber–risk. Emergence of new Covid-19
variants also remains a possibility in the outlook. Heightened operational and
cyber risks have the potential to disrupt the smooth functioning and efficiency of
the payments system with negative consequences on financial stability.
2.33 Banking institutions are continuing to develop core competences and requisite
frameworks in managing emerging risks, including cyber risk.
2.34 Banking institutions are also required to comply with the Society for Worldwide
Interbank Financial Telecommunication (SWIFT) Customer Security Controls
Framework for Cybersecurity management.
2.35 Table 2 below presents the banking sector’s major risks at an aggregate level
and assessment of the adequacy of risk management systems across the market
as at 31 December 2021.
Table 2: Banking Sector Risk Matrix as at 31 December 2021
Type of Risk
Level of Inherent
Risk
Adequacy
of
Risk
Management
Systems
Overall
Composite Risk
Direction of Overall Composite
Risk
Credit
Low
Acceptable
Low
Stable
Liquidity
Low
Acceptable
Low
Stable
Foreign Exchange
Moderate
Acceptable
Moderate
Stable
Interest Rate
Moderate
Acceptable
Moderate
Stable
Strategic Risk
Moderate
Acceptable

Moderate
Stable
Operational Risk
High
Acceptable
High
Increasing
Legal
&
Compliance
Risk
Moderate
Acceptable

Moderate
Stable
Reputational Risk
Moderate
Acceptable

Moderate
Stable
Overall
Moderate
Acceptable
Moderate
Stable

3.
CAPITAL MARKETS PERFORMANCE

3.1 The capital market sector remained stable in 2021 and was able to play its role
as a source of long-term funding and investment. The economic stabilisation
efforts such as the foreign exchange auction system introduced in June 2020 to
stabilise the exchange rate, have impacted positively on the capital markets’
returns on investments for both Securities Market Intermediaries (SMIs) and
investors.
Capital Market Structure
3.2 A summary of the total number of licensed and registered institutions in the
capital market as at 31 December 2021 (Securities Market Intermediaries) is
shown in the table below.
Table 3: Number of SECZ Licensed Entities
Source: Zimbabwe Stock Exchange

3.3 The Securities and Exchanges Commission of Zimbabwe assessment of the
capital markets reflects notable resilience based on the key financial soundness
indicators including Capital, Liquidity, Earnings, Solvency, Funds under
management/ Assets under custody, Management Quality and Turnover. There
was an improvement in the capital adequacy of investment management firms
as there were 20 out of 21 firms which were adequately capitalised compared to
16 reported during the previous period. One asset manager reported operating
Type of institution

Securities Exchanges

Central Securities Depositories

Securities Dealing (Stockbroking) firms

Securities Investment (Asset) Management firms

Securities Custodial firms

Securities Transfer Secretaries firms

Securities Trustee firms

Securities Advisory firms

losses. The sector’s profitability and capital adequacy compliance stood at 81%
and 95.2%, respectively, as at December 2021. The industry losses reported
were mainly linked to new entrants into the asset management industry who are
still to gain critical mass. The adoption of a risk adjusted capital framework by
Securities and Exchange Commission has stabilized the solvency of both
individual institutions and the sector.
3.4 The Zimbabwe Stock Exchange (ZSE) market capitalisation gained 314.37%
during the year to close the period on 31 December 2021 at ZW$1.32 trillion
from ZW$317.88 billion reported in 2020.
3.5 The All Share and Top Ten indices grew by 311% and 191%, respectively, during
the period under review. The top ten contribution to the total market
capitalisation increased from 68.5% in December 2020 to 73.59% as at 31
December 2021. The figure below summarized the composition of the top ten
counters on the ZSE.
Figure 13: Top Ten Counters to Market Capitalization


Source: Zimbabwe Stock Exchange

3.6 The value of trades (turnover) for the period ended 31 December 2021 increased
by 276.80% to ZW$65.27 billion from ZW$17.32 billion that was reported in
2020.


CBZ
27%
FBC
5%
OK ZIM
5%
BAT
5%
PADENGA
6%
CASSAVA
9%
HIPPO
8%
INNSCOR
10%
ECONET
11%
DELTA
14%
2020 Top Market Cap
CBZ
4%
SIMBISA
5%
HIPPO
5%
BAT
7%
INNSCOR
9%
NATFOODS
10%
CASSAVA
11%
ECONET
23%
DELTA
22%
OK ZIM
4%
2021 Top Market Cap

Table 4: Equity Markets Performance Summary

2021 % Change
ZSE Turnover
ZW$2,028,580,517
ZW$17,321,473,923
ZW$65,266,783,511
277%
Traded Volume

Market Capitalisation
ZW$29,767,094,449
ZW$317,879,307,047
ZW$1,317,205,109,565
314%
All Share Index

Top 10 Index

No of Listed Companies

-2%
Source: Zimbabwe Stock Exchange
3.7 Foreign investors registered a net sell-off of ZW$9.73 billion, during the year
accounting for 14.91% of total trades for the year.
3.8 The performance of the equity markets is summarized in the figure below.

Figure 14: Volume of Shares Traded Year on Year (2019- 2021)

Source: Zimbabwe Stock Exchange

3.9 Victoria Falls Stock Exchange (VFEX) recorded US$619,549 worth of trades
during the year and market capitalization grew to US$254 million. As at the end
of 2021, four companies were listed on VFEX namely Padenga Holdings, SEEDCO,
Bindura Nickel Corporation and Caledonia Mining.

No of Shares Traded (Billions)
Month
Traded Volume YoY

3.10 The low stock price volatility on the VFEX market stabilised the profitability and
returns on investments for both Securities Market Intermediaries (SMIs) and
investors.
3.11 As at 31 December 2021, Assets under Custody (AUC) amounted to ZW$533.26
billion which was a 257.30% increase from ZW$149.25 billion reported as at 31
December 2020.
ZSE All Share Index (ALSI) Volatility
3.12 The ALSI volatility was calculated using industrial indices from January 2018 to
December 2021. The ALSI Index Monthly Exponentially Weighted Moving
Average (EWMA) relative volatility is shown below.
Figure 15: All Share Index EWMA Relative Volatility (January 2018–December 2021)

Source: Zimbabwe Stock Exchange
3.13 The ALSI volatility was estimated at 4.17% as of 31 December 2021 (Q320214.31%), using a smoothing constant of 0.97. The increased retail investors’
activity, and the widening gap between interbank exchange rate and parallel
market rates continued to shock the market and smoothen equity prices
volatility. The ZSE equities presented a viable and rewarding alternative for
investors which include institutional investors such as pension funds, insurance
companies and corporate sector.

3.14 The FINSEC Alternative Trading Platform’s market capitalisation closed at
ZW$8.30 billion in December 2021 from ZW$5.89 billion in September 2021, a
41% quarterly increment and a significant increase of 277% from $2.2 billion in
December 2020. The turnover grew by 439% while the volume of shares traded
rose by 99% to 3.2 million from previous 1.6 million shares. The table below
summarises the overall performance of the FINSEC ATP.
Table 5: FINSEC ATP Performance Summary
Financial Securities
Exchange

2021 % Change
ATP Turnover

ATP Traded Volume
ZW$9,886,188
ZW$1,595,785
ZW$3,175,393
99%
ATP Market Cap
ZW$996,140,616
ZW$2,199,810,527
ZW$8,301,171,900
277%
Number of listed Companies

Source: Zimbabwe Stock Exchange


Investment Management
3.15 Funds under Management (FUM) for the industry as at 31 December 2021 stood
at ZW$534 billion [Q3-2021-ZW$396.8 billion] representing an increase of
241.2% from ZW$156.5 billion reported as at 31 December 2020. The increase
was mainly attributed to price valuations and the conversion of United States
Dollar (US$) denominated property assets as at 31 December 2021.
Table 6: Asset Management Summary (December 2021)


Asset Management

Change
Total FUM)
ZW$7,159,044,293
ZW$15,050,708,208
ZW$156,539,539,068
ZW$534,071,318,090
241.2%
Collective Investments
Schemes
ZW$168,176,773
ZW$167,023,446
ZW$730,246,168
ZW$5,668,692,465
676.3%
CIS / Total Market FUM

Number of Players

9.1%
*Capital Adequacy
Compliance (%)

*Firms' Positive Earnings


3.16 A significant increment in retail investors was registered as reflected by the 6.8
times increase of collective investment schemes composition of FUM from 0.5%
to 1.1% of the total funds under management.
Figure 16: Distribution of Funds Under Management as at 31 December 2021


Figure 17: Funds Under Management as at 31 December 2021


EQUITIES (QUOTED)
74.97%
PROPERTY
18.20%
EQUITIES
(UNQUOTED)
3.30%
MONEY MARKET
1.96%
CASH AT BANK/ CALL
DEPOSITS
0.84%
BONDS
0.70%
OTHER

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

ZW$ Billions

Capital Markets Risk Management and Developments

3.17 The Securities and Exchange Commission of Zimbabwe (SECZ) became an
associate member of the International Organization of Securities Commissions
(IOSCO) in January 2022. The development provides opportunities for the
Commission to collaborate with other world regulators and enhance its regulation
and supervision techniques to promote stability of the capital markets.
3.18 Securities Market Institutions (SMIs) continued to adopt the practices necessary
to fight the spread of Covid-19 and ensure availability of uninterrupted financial
services. SECZ encouraged SMIs to invest in basic technology for customer data
retention and historical company information.
3.19 In addition, SECZ set up a dedicated team on the assessment of the fintech ideas
from both the market players and individuals to harness technology in capital
markets sector.


4.
CONDITION AND PERFORMANCE OF THE INSURANCE AND PENSIONS
INDUSTRY

4.1 The insurance and pensions sector remained largely sound and stable during the
period under review in spite of the challenging operating environment
characterised by increasing Covid-19 cases, inflation pressures and some
unresolved legacy issues.
Risks to the Insurance and Pensions Industry
Reputational Risk
4.2 In line with the Justice Smith Commission of Inquiry recommendations of 2015,
the Commission initiated the compensation of policy holders and pensioners for
the loss of value suffered due to hyperinflation in 2007 and 2008 and the
adoption of a multi-currency system in 2009. The development is expected to
reinforce confidence in the insurance sector.
4.3 Pension benefit arrears grew by 85% from ZW$327.55 million in 2020 to
ZW$606.70 million in 2021. The arrears include those of non-resident pensioners
whose pension pay-outs have remained outstanding for years owing to foreign
currency challenges.
Economic Risk
4.4 Inflation risk arising from exchange rate volatility affected performance of some
insurance companies during the review period. In response the sector undertook
regular premium reviews to match inflation developments. Meanwhile
compensation packages generally lagged behind inflation, thereby reducing
disposable incomes and affecting the demand for insurance products. The
mismatch between inflation developments and salary reviews was evidenced by
the increase in the lapse rate as policyholders failed to keep pace with premium
reviews.
4.5 The structure of Gross Premium Written by the industry was skewed towards
short-term products, thus indicating the negative impact of inflation on the
industry. Life products were largely driven by defined benefit products such as
funeral services, group life (Group Life Assurance) and group funeral. Inflation

also worsened the purchasing power of pensioners who were already getting low
pension pay-outs.
Operational Risk
4.6 Inherent operational risk was rated high for the review period on account of the
increased number of applications for dissolutions, potential cyber security risk
and uncertainty about the Covid-19 pandemic, which threatened business
continuity. It was, however, noted that the Covid-19 impact on claims was not
as high as anticipated as the increase was 109.7% from ZW$135 million in 2020
to ZW$282 million as at 31 December 2021.
4.7 There were, however, no reported cases of cyber risk in the industry during the
review period. To enhance awareness and mitigation of cyber security risk, SECZ
is in the process of developing a framework which will be issued to the industry.
Liquidity Risk
4.8 Liquidity risk was considered medium in 2021 on account of the growth in
premium
debtors
and
contribution
arrears
attributed
to
challenging
macroeconomic conditions.

Regulatory Risk
4.9 Regulatory risk was rated low. Average compliance levels with Minimum Capital
Requirements (MCR) improved from 87% in 2020 to 93% in 2021. Compliance
levels for the funeral assurers were the lowest at 63% from 38% in 2020.
4.10 Compliance with prescribed asset minimum requirement continued to be low, at
an average of 1.1% for short-term insurers, 3.49% for life assurers and 4.08 %
for pension funds against compliance thresholds of 10%, 15% and 20%,
respectively. The low compliance rates were mainly attributed to the quest for
balance between compliance and preservation of value. This was reflected in the
concentration of investments in two (2) asset classes, namely investment
property and listed equities which were 70% for pensions, 55% for short term
insurance and 90.70% for life companies.

Solvency Risk
4.11 IPEC implemented the Zimbabwe Integrated Capital and Risk Programme
(ZICARP) Framework in June 2021, which aims to, among other objectives,
improve consumer protection and assurance to policyholders and beneficiaries.
ZICARP provides incentives to insurers to measure and properly manage their
risks, which enables them to absorb significant unforeseen losses. The
framework introduced a principle-based approach to regulation, moving away
from a rules-based approach, to ensure better allocation of capital resources in
insurance firms, align supervision of all insurance entities and make the sector
more attractive to investors.
4.12 To minimise compliance risk, the Commission encouraged entities to align their
capital with the outcomes of the ZICARP dry runs in order to avoid last minute
efforts to raise additional capital.
Market Risk
4.13 Market risk was considered moderate to high during the review period. Insurance
and pensions liabilities are generally of a long-term nature and the unavailability
of a variety of matching assets exposes the industry to market risk. This is
exacerbated by the dominance of the market by a few asset classes namely
equities and properties. Listed equities were 36% of the assets, showing that a
substantial amount has been channelled to the Victoria Falls Stock Exchange.
The widening of Victoria Falls Stock Exchange and the granting of prescribed
asset status on foreign currency denominated instruments is expected to reduce
market risk going forward.

5.
DEPOSIT PROTECTION SCHEME

5.1 The roles and functions of the Deposit Corporation of Zimbabwe (DPC) facilitate
the maintenance of financial stability by guaranteeing protection to depositors in
the banking sector, whereby depositors are compensated the insured portion of
their deposits in the event of failure of a contributory institution.
5.2 The existence of deposit protection is of paramount importance in minimizing the
risk of bank runs, which involves panic withdrawals due to failure of one bank or
rumours of fragility in the banking sector.

Risks to the Deposit Protection Corporation Fund
5.3 The DPC Fund, in fulfilment of its mandate of protecting depositors, is exposed
to three main risks as shown in the Table below.
Table 7: DPC Risks and Mitigation


Deposit Protection Corporation Cover Level
5.4 As at 31 December 2021, 92.3% of the contributory banking institutions’ (CBI’s)
depositor accounts were fully covered at the cover level of ZW$10,000 per
Type of Risk
Impact
Risk Mitigants
Quality rating
Residual
Risk
Direction of
Risk
Investment Risk
Investing the main
source of income
i.e. premiums on
money market
where returns are
low.
High
Low returns than
inflation rate.
Value of Deposit Protection
Fund growth is stunted.
Continued depreciation
of local currency diminishes
value of Fund

Diversification of investment portfolio
into properties and special
instruments like prescribed bonds to
hedge against inflationary pressures
as well as improve the rate of return
on investments.

Moderate
Stable
Fund Adequacy Risk
The combined fund
size against
watchlist
exposures
High
Limited capacity to fulfil its
mandate of paying
depositors in the event of a
material compensation
event.

Restoration of ZW$ premium rate to
0.3% per annum.
Gradual increase in FCA premium
rate effective January 2022
High
Stable
Insurance
Assessment Risk
Safety and
soundness of
Contributory
Banking
institutions

Low
Wrong determination of
insurance exposure in
the event of a compensation
event

CBIs’ and DPC’s external auditors
verify the deposits yearly
RBZ regular on-site examinations
MOU with RBZ on sharing
information.
Monthly meetings between RBZ and
DPC
Low
Stable

depositor per bank. This is in line with the public policy objectives of covering at
least 90% of the depositors.
5.5 At the cover level of US$1000.00 per individual FCA deposit class, 96.3% of the
depositors were fully covered in compliance with the public policy objectives of
covering at least 90% of the depositors.
5.6 The coverage levels for the banking institutions is reflected in Tables 9 and 10.

Table 8: Deposit Insurance Coverage for Banking Institutions (Local Currency Accounts)
Item
December 2021
Percentage
Total Number of Deposit Accounts
5,871,908
100%
Total Number of Deposit Accounts Fully Covered
5,419,591
92.3%
Total Number of Deposit Accounts Partially Covered
452,317
7.7%
Value of Deposits in Fully Covered Accounts
ZW$2.9 billion
1.3%
Value of Deposits in Partially Covered Accounts
ZW$225.2 billion
98.7%
Total Value of Insured Deposits
ZW$7.4 billion
3.2%
Total Value of Deposits
ZW$228.1 billion
100%

Table 9: Deposit Insurance Coverage for Banking Institutions (Foreign Currency Accounts)
Item
December 2021
Percentage
Total Number of Deposit Accounts
920,708
100%
Total Number of Deposit Accounts Fully Covered
886,153
96.3%
Total Number of Deposit Accounts Partially Covered
34,555
3.7%
Value of Deposits in Fully Covered Accounts
US$38.6 million
2.5%
Value of Deposits in Partially Covered Accounts
US$1,520.1 million
97.5%
Total Value of Insured Deposits
US$72.5 million
4.7%
Total Value of Deposits
US$1,558.7 million
100%

5.7 At the maximum deposit insurance cover level of US$500 per individual deposit
class, 92.3% of the FCA deposit accounts in the deposit-taking microfinance
institutions (DTMFIs) sector were covered in full.
5.8 At the cover level of ZW$500 per depositor per institution, 91.3% of the DTMFI
depositors were fully covered as shown in Table 11 and 12.

Table 10: Deposit Protection Cover for DTMFIs as at 31 December 2021 (Local Currency
Accounts)
Item
December 2021
Percentage
Total Number of Deposit Accounts
201,828
100%
Total Number of Deposit Accounts Fully Covered
184,253
91.3%
Total Number of Deposit Accounts Partially Covered
17,575
8.7%
Value of Deposits in Fully Covered Accounts
ZW$5.8 million
1.1%
Value of Deposits in Partially Covered Accounts
ZW$505.7 million
98.9%
Total Value of Insured Deposits
ZW$14.6 million
2.9%
Total Value of Deposits
ZW$511.5 million
100%

Table 11: Deposit Protection Cover for DTMFIs as at 31 December 2021 (Foreign Currency
Accounts)
Item
December 2021
Percentage
Total Number of Deposit Accounts
1,276
100%
Total Number of Deposit Accounts Fully Covered
1,178
92.3%
Total Number of Deposit Accounts Partially Covered

7.7%
Value of Deposits in Fully Covered Accounts
US$25,825
0.7%
Value of Deposits in Partially Covered Accounts
US$3,848,545
99.3%
Total Value of Insured Deposits
US$74,825
1.9%
Total Value of Deposits
US$3,874,370
100%

5.9 As at 31 December 2021, membership to the DPC Scheme was comprised of 27
contributory financial institutions (CBIs) as shown in the Table below:


Table 12: Membership to the DPC Scheme as at 31 December 2021
Type of Institution
Number
Commercial Banks

Building Societies

Merchant Banks

Savings Bank

Infrastructure Development Bank

Deposit-Taking Micro-finance Institutions (DTMFIs)

Total

Future Regulatory Developments
5.10 Deposit Protection Corporation undertook a review of the DPC Act, [Chapter
24:29]. This was occasioned by the liquidation provisions, in the new
Insolvency Act, [Chapter 6:07], which was revised in 2018, precluding the
application of the Act to banking institutions and insurance companies. Proposed

amendments had been submitted to the Attorney General for input as at the end
of 2021.
5.11 DPC is also proposing changes to the Problem Bank Resolution laws providing
for, inter alia, writing down of shareholding, to instil finality & speedy CBIs
resolution.
5.12 The smooth resolution of failed banks is a prerequisite for a stable financial
system.

6.
FINANCIAL MARKETS INFRASTRUCTURE
6.1 A strong and well-functioning national payment systems fortifies the foundations
of economic growth and development. In this regard, the Bank takes quick and
decisive steps to ease any payment, clearing and settlement constraints in the
value chain, at the same time strengthening the regulatory and supervisory
framework to proactively identify, assess and deal with vulnerabilities in the
ecosystem.
6.2 The national payment services sector remained robust, notwithstanding the
disruptive effects of the Covid-19 pandemic during the period under review.
Major Highlights and Developments
6.3 The key highlights of the national payment systems sector’s activities in 2021
were:
i.
the payment systems comprising of 13 payment system providers and 25
participant banks continued to register upward trend in values in the various
payment streams during 2021;
ii.
transaction values grew by 192% percent to ZW$1,160 billion, whilst the
volumes increased by 19.5% percent to 130.78 million in 2021 compared to
2020 period. The Tables below show the monthly transactional values and
volumes respectively;
iii.
a total of 28 products from different financial institutions were approved in 2021
compared with a total of 16 in the previous period;
iv.
the Cybersecurity Risk Based Guideline on Payment Systems and the Risk Based
Anti-Money Laundering Guideline were issued during the review period;
v.
the Reserve Bank evaluated self-assessments for compliance from seven
institutions against the 24 Principles of Financial Market Infrastructures [PFMIs]
(core payment systems standards under the Bank for International Settlement
(BIS));
vi.
two anti-money laundering inspections were conducted on high-risk institutions
as informed by the sectorial risk assessment and risk-based approach; and

vii.
the local banking community continued to participate in the SADC Real-Time
Gross Settlement System (SADC-RTGS) and maintained a progressive share of
transaction values processed in the SADC-RTGS.
Table 13: National Payment Systems Transactional Activities January - December 2021
TRANSACTION VALUES IN BILLIONS (ZW$)
MONTH
RTGS
ATM
POS
Mobile
Internet
Values
Total
Total
Change
Jan-21

Feb-21

Mar-21

Apr-21

May-21

Jun-21

Jul-21

Aug-21

Sep-21

Oct-21

Nov-21

Dec-21

TOTAL YTD


Proportion


Table 14: National Payment Systems Transactional Activities January - December 2021
TRANSACTION VOLUMES IN MILLIONS
MONTH
RTGS
ATM
POS
Mobile
Internet
Total
Volumes
Total
Change
Jan-21

Feb-21

Mar-21

Apr-21

May-21

Jun-21

Jul-21

Aug-21

Sep-21

Oct-21

Nov-21


TRANSACTION VOLUMES IN MILLIONS
MONTH
RTGS
ATM
POS
Mobile
Internet
Total
Volumes
Total
Change
Dec-21

TOTAL YTD


Proportion


Real Time Gross Settlement System (RTGS)
6.4
Real Time Gross Settlement (RTGS) system cumulative total transactions of 12
million were valued at ZW$4.95 trillion in 2021.

Figure 18: RTGS Values and Volumes for the Year 2021


Interoperability
6.5
The implementation of Statutory Instrument 80 of 2020 on interoperability
brought convenience to the transacting public in the movement of funds across
players in the face of the coronavirus pandemic. This continued to be
underpinned by sustained growth in the volume and value of electronic payment
transactions (see Figure 17).
6.6
The interoperability transaction values processed increased significantly from
ZW$105 million in 2020 to ZW$1.48 billion as at the end of 2021.
6.7
The Figure below provides monthly graphical comparison of the interoperability
transactional activities for the year, from January to December 2021.

Volumes in Millions
Values in ZW$ Billions
VALUES
VOLUMES

Figure 19: Mobile Money Interoperability Volumes and Values from January to December

Payment Systems Risk Analysis
6.8
Risks from the payment systems pertaining to clearing, securities and settlement
in the period under review, remained unchanged with medium probability of
occurrence and impact in 2021.
6.9
The inherent security risk of retail payments increased in the advent of
digitisation and emerging cyber security risks during the period under review.
The probability and impact of the risk heightening in 2022 is, however, medium.
6.10 The Bank will continue to monitor risks to the national payment system.
Specifically, cyber security and money laundering, will be monitored accordingly
under the risk-based framework in place. To ensure sustained stability, the
authorities will continue to identify and monitor market developments as well as
any other pertinent risks.
Oversight
6.11 During the period under review, the Bank evaluated self-assessments for
compliance of seven payment systems providers against the 24 Principles of
Financial Market Infrastructures [PFMIs] (core payment systems standards under
the Bank for International Settlements (BIS)).
6.12 Positive technical compliance with the standards has been registered by the
majority of the institutions over the past six years of implementation. There is

1,000


1-Jan
1-Feb 1-Mar
1-Apr 1-May
1-Jun
1-Jul
1-Aug
1-Sep
1-Oct
1-Nov
1-Dec
Volumes in Thousands
Values in Millions
Total Values in Millions LHS
Total Volumes in thousands RHS

need, however, for improvement in the application of some key standards such
as the stress testing for participant banks and participant default procedures.

Anti-Money Laundering and Counter Financing of Terrorism (AMLCFT)

6.13 The supervisory efforts over the year, applying the risk-based approach, covering
off site analysis and onsite examinations, had a positive effect on compliance
and hence promoted awareness of AML/CFT obligations and ML/TF risks among
the market players. This is expected to contribute significantly to the financial
stability discourse through mitigating against adverse effects of criminal
economic activity which have the potential of destabilising the financial sector.
6.14 Recommendations to players were made to enhance structural governance
arrangements and application of the risk-based approach across the financial
institutions’ products.
SADC-RTGS System3
6.15 The Region through the SADC Bankers Association embarked on the
implementation of a number of key initiatives pertaining to the regional payment,
clearing and settlement systems including the Mobile Initiated Low Value Credit
Transactions Cleared on an Immediate Basis (TCIB). The TCIB output will settle
in the SADC-RTGS.
6.16 The TCIB retail payments initiative aims at creating an efficient, safe, harmonised
and integrated payments system in the SADC region, to further reduce crossborder remittance costs across the SADC region as well as to enhance financial
inclusion.
6.17 The soft launch and testing of TCIB were successfully completed between
Zambian and Zimbabwean banks. The results will help the project to be
replicated across the regional member states.
6.18 The regional payment systems and integration project is expected to enhance
the current national efforts to formalise cross border small payments, and hence

3 SADC-RTGS (formerly known as SIRESS) is the regional cross-border interbank settlement system in the SADC region.

improving on the accountability and monitoring of international remittances. The
project is also critical for both regional and domestic financial stability.
SWIFT Customer Security Controls Framework4
6.19 In view of the heightened digitalisation, leading to increased interconnectivity
between systems and institutions, the rise of cyber risk is another potential threat
to domestic financial stability. Cognisant of that, the SWIFT Customer Security
Controls Framework (CSCF) is being implemented with mandatory and advisory
security controls for SWIFT users.
6.20 The CSCF Assessment status for Zimbabwean banks is shown in the Table below.
Table 15: CSCF Assessment Status as at 31 December 2021
Zimbabwean Banks
No of Bank Identifier Codes
Proportion
Compliant

68%
No valid attestation

21%
Not compliant

11%
Total

100%

6.21 The Bank will continue to monitor the implementation process and ensure full
compliance with the SWIFT-CSCF by the banking community on the agreed
timelines.

ISO 20022
6.22 The adoption of ISO 20022, an international standard for payments messaging
being driven by SWIFT alongside major central banks worldwide, is equally
receiving due attention within the local banking community.
6.23 The banking sector is expected to migrate by third quarter of 2022 well ahead
of the globally set deadline of October 2023. This will assist in achieving the
following core objectives:
i.
greater interoperability;
ii.
elimination of barriers impeding seamless automation capabilities; and

4 The SWIFT Customer Security Controls Framework (CSCF) is a set of mandatory and advisory security controls for SWIFT users.
The mandatory security controls establish a security baseline for the entire community. They must be implemented by all users
on their local SWIFT infrastructure.

iii.
end-to-end transportation of richer data eliminating the need for translation
or truncation.
6.24 This will also enable compliance with latest international best practices and
standards, such as those related to AML/CFT, subsequently easing automated
processing and improving the speed and efficiency of cross-border payments.

7.
AML/CFT SURVEILLANCE INITIATIVES
7.1
Measures implemented by the country since being “grey-listed” resulted in a
provisional determination by the FATF, at its October 2021 plenary, that
Zimbabwe had addressed all the key deficiencies as required.
7.2
In line with its procedures, the FATF undertook an onsite assessment in January
2022 and confirmed the progress made by the country in implementation of
AML/CFT recommended measures. In March 2022 the country was removed
from the “grey-list”.
7.3
The development is expected to enhance confidence in Zimbabwe’s financial
system and contribute positively to financial stability. The development is also
expected to improve local banks’ ability to establish new correspondent banking
relationships and to maintain existing ones. Some Zimbabwean companies,
however, remain on the USA OFAC5 sanctions list and this may still continue to
hamper correspondent banking relationships.
7.4
As part of addressing the deficiencies listed by the FATF, Zimbabwe has put in
place a robust Risk Based Supervision framework to ensure that financial
institutions comply with AML/CFT standards as prescribed by the country’s laws
and the FATF Forty Recommendations.


5 The Office of Foreign Assets Control is a financial intelligence and enforcement agency of the U.S. Treasury Department. It
administers and enforces economic and trade sanctions in support of U.S. national security and foreign policy objectives.

8.
OUTLOOK AND FINANCIAL STABILITY ENHANCEMENTS
8.1
Foreign exchange, inflation, and cyber risks are expected to remain elevated in
the next 12 months given the high foreign currency demand, the global and
domestic inflationary pressures as well as increased migration to digital banking
models by financial institutions.
8.2
Shocks arising from the spill over effects of the Russia-Ukraine conflict have the
potential of negatively affecting the operating environment through supply
chain disruptions which may lead to further increases in energy and food prices.
8.3
The vaccination momentum to contain the Covid-19 pandemic and restoration
of normal business activities through easing of restrictions is expected to
mitigate risks to financial stability through an improving macroeconomic
environment.
8.4
Meanwhile, financial sector regulators are pursuing various policy initiatives to
promote and maintain financial stability in the outlook period.
Banking Sector
8.5
The Bank is developing a Macro-prudential Policy aimed at facilitating
containment of systemic vulnerabilities in the economy. Effective assessment
of systemic risk, and deployment of the macro-prudential toolkit will be key
success factors, while strong institutional and governance frameworks will be
essential for the effective conduct of macro-prudential policy.
8.6
To achieve its goals, the Macro-prudential Policy will be supported by strong
supervision and enforcement.
8.7
The Bank will also broaden its stress testing framework to cover macro-stress
testing aspects incorporating linkages between the banking sector,
macroeconomic developments or other external shocks, and financial market
prices or real estate prices.
8.8
Further, the operationalisation of an enhanced Contingency Planning and
Systemic Crisis Management Framework is expected to boost financial stability
institutional arrangements, strategies, and processes necessary for the
management and containment of a financial crisis.

8.9
Globally, sustainable banking practices are increasingly becoming the future in
banking as highlighted by the shift towards adoption of sustainable banking
practices aimed at contributing to the development of, as well as mobilising
mainstream finance to support the transition towards a sustainable economy.
8.10 In an effort to drive the adoption of sustainability in the banking sector, the
Bank adopted a central bank led model in the adoption and implementation of
sustainability standards. As part of the efforts to promote the implementation
of sustainability standards in banking sector processes, banks have been
requested to integrate sustainability principles, covering environment and
climate related issues, into their corporate governance and risk management
frameworks and practices.
8.11 Cognizant of the impact of climate related physical and transitional risks on the
banking sector through macro and microeconomic transmission channels, and
in pursuance of its mandate to promote financial stability, the Bank has initiated
a process of collaboration with various stakeholders responsible for climate risk
management.
8.12 To combat the rising risk of cyber-attacks in the increasingly digital
environment, the Bank is conducting a structured assessment of the banking
sector’s readiness to prevent, detect and respond to cyber-attacks. The results
of the cybersecurity maturity assessments will inform policy going forward.
8.13 Further, the Bank is in the process of rolling out the implementation of the Basel
III liquidity framework, which will promote banking institutions’ resilience to
severe liquidity stress. The Bank is also in the process of recalibrating its early
warning and failure prediction models to take into account current economic
developments. The models will be used to identify banking institutions that are
likely to be in distress in the next twelve months.
8.14 The Bank will continue to support Fintech innovations through the Regulatory
Sandbox (the Sandbox) which was launched in March 2021. The growing
interest in the Fintech space is expected to continue with more registrations on
the Sandbox expected in 2022.

Capital Markets Initiatives
8.15 The Securities and Exchange Commission of Zimbabwe will be undertaking the
following initiatives in the outlook period, as part of efforts to promote financial
stability:
i. development of a framework for the determination of Systemically
Important Financial Institutions in the capital markets and requisite
regulatory requirements;
ii. development and refinement of the risk-based capital adequacy framework
to promote proactive monitoring and identification of cases of financial
insolvency and other risks to Financial Market Infrastructures;
iii. adoption of the IOSCO Principles for Financial Market Infrastructures
(PFMI): The standards require Financial Market Infrastructures to maintain
sufficient financial resources to cover their exposures arising from the
default of one or two clearing members; and
iv. development of a stress testing methodology for the capital markets sector.

Insurance and Pensions Industry
8.16 The Insurance and Pensions Commission issued the following guidance to
members:
i. directive on Dissolutions to facilitate orderly exit of dormant and unviable
funds from the industry for the protection of members; and
ii. Investment Guidelines to facilitate diversification of pension fund
investments by allowing the pensions industry to invest 15% of their assets
offshore as a way of managing risk.

Financial Markets Infrastructure
8.17 The national payment systems sector is projected to remain robust in the
outlook period.
8.18 The Reserve Bank has commenced a process to review the National Payment
System Act [Chapter: 24:23] with the view to enhance safety and security

of digital transactional activities on the various payment platforms. Other
planned initiatives in the sector include:
i. continuous review of the regulatory framework to embrace new
developments and innovations;
ii. capacity building through upskilling staff competencies in anti-money
laundering and counter financing of terrorism; and
iii. ensure effective cyber security measures are implemented and enforced to
reduce inherent risks.


APPENDICES

Appendix 1: Macroeconomic Indicators for Zimbabwe

2021(Est)
REAL SECTOR


Real GDP at 2012 Market prices (ZW$' m)

Nominal GDP at Market (US$'m up to 2016)

GDP at Market Prices % changes

GDP per capita
12,400.9
12,681.2

11,890.6
71,649.8
180,476.7


PRICES


Month-on-Month (end period) %

Annual Inflation (end period) %

Annual Inflation (period average) %


EXTERNAL SECTOR


Trade Balance (US$m)

Current a/c balance (US$m)

Current a/c balance (% of GDP)


MONETARY SECTOR*


Broad Money M3 (ZW$ '000)

Domestic Credit (ZW$ '000)

Credit to Private Sector (ZW$ '000)

Credit to Parastatals (ZW$ '000)

Credit to Government (net)(ZW$ '000)

Nominal Minimum Lending Rate (%)

Nominal Maximum Lending Rate (%)


PUBLIC FINANCES


Revenue excluding grants

Revenue including grants

Capital expenditure and net lending

Recurrent Expenditure

Total expenditure and net lending

Balance excluding grants

Balance including grants

POPULATION (millions)

Source: RBZ (2022)
Appendix 2: Selected Banking Sector Indicators, 2016 – 2021

Capital Adequacy Ratio

Nonperforming Loans Ratio

Large Exposures to Capital

Return on Equity

Return on Assets

Prudential Liquidity Ratio

Source: RBZ (2022)