2019 MID TERM MONETARY POLICY STATEMENT


TRANSITION TO NORMALCY


BY
DR. J. P. MANGUDYA
GOVERNOR


RESERVE BANK OF ZIMBABWE
13 SEPTEMBER 2019

TABLE OF CONTENTS


LIST OF TABLES
Table 12: Payment Streams Transactional Activities from January to June 2019

LIST OF FIGURES
Figure 2: Gold Purchases by Fidelity Printers and Refiners (kilograms) –

SECTION ONE

INTRODUCTION
1.
This mid-term Monetary Policy Statement comes at a time when the
country is implementing a number of policy reforms to strengthening fiscal
sustainability, reducing inflation and promoting a flexible exchange system
and lay the foundation for sustainable private sector-led economic
transformation.

2.
The inflationary pressures emanate from; (i) the lagged effects of
monetization of past fiscal deficits, (ii) the ongoing and necessary
correction of long decades of mispricing and across the board subsidization
of many goods and services including foreign currency, fuel, electricity,
etc. which resulted in foreign currency shortages, spiralling parallel
exchange rate premiums and speculative pricing, thus posing the risk of a
costly re-dollarization of the economy.

3.
To restore normalcy in the foreign currency market and stabilise the
ensuing inflationary pressures, we formalised the trading of foreign
currency by introducing the inter-bank foreign exchange market and
licencing of bureaux de change in February 2019. Subsequent to that,
Government took a deliberate and bold move of removing the multiplecurrency system through Statutory Instrument (SI) 142 in June 2019.

4.
These measures are meant to restore confidence and macroeconomic
stability, strengthen economic fundamentals and to create a conducive
business environment. The policy measures were also buttressed by
additional strategies to manage liquidity in the economy and keeping

inflation under check, including the recent upward review of the Bank rate
from 15% to 50%, which is meant to curtail speculative borrowing.

5.
As a result of ongoing policy measures, we have seen the parallel market
exchange rate starting to converge with the interbank rate, as foreign
currency flows to the formal market improve.

6.
As the country get over the pass-through effects of the ongoing realignment of domestic prices that include fuel and electricity, we should
see inflationary pressures beginning to recede, as retailers adjust their
prices in line with the relative stability of the inter-bank market and falling
parallel exchange rate premiums and as prices re-align to depressed or
subdued effective demand.

7.
A more positive outlook on exchange rate and inflation is, therefore,
expected in the medium to long term, as the necessary supportive policy
interventions and conditions are already in place, including the following:

i. The discontinuation of Central Bank financing of Government deficits to
curtail money supply growth. This allows for successful monetary
targeting and is a precondition for a stable exchange rate and inflation.
ii. The upward review of the Bank rate, which is expected to continue
curtailing speculative borrowing to purchase foreign currency on the
foreign exchange market.
iii. The implementation of a tight monetary regime when necessary, coupled
with a flexible exchange rate system. The flexible exchange rate will
assist in absorbing external shocks and ensuring that the external position
is sustainable. The strict control of money supply through monetary

targeting framework is expected to anchor inflation expectations and
further stabilise the exchange rate.
iv. Lastly, the introduction of measures supportive of the local currency
system will allow the Central Bank to regulate the quantity of money in
the economy in line with levels of economic activity. The current
shortage of physical cash has led to a supply and demand disequilibrium,
and arbitrage opportunities for differential pricing models, depending on
the mode of payment, thereby creating distortions in the pricing
mechanism. Shortages of cash excludes the informal sector, the rural
people and senior citizens from fully participating in economic activity.

8.
It is our considered view that the policies being pursued by Government
will undoubtedly tame the inflationary pressures currently bedevilling the
economy. As such, this Statement proposes additional confidence building
measures, including the timeous and effective communication of economic
and monetary developments to help anchor inflation expectations.

9.
As monetary authorities, we strongly believe that the country’s underlying
fundamentals are in the right direction and must be buttressed by strong
commitment and implementation of the policy measures to boost economic
growth and to guarantee exchange rate and price stability. Moreover, the
need for continuing structural reforms across all sectors of the economy
remains critical for the country to realize the envisaged vision of becoming
an upper middle class economy by 2030.

10.
The rest of the monetary policy statement is as follows: Section 2 provides
the Review of the recent monetary policy measures, Section 3 highlights
the current monetary policy measures and lastly, the Annexures Section

highlight the international and domestic developments underpinning this
monetary policy statement.

SECTION TWO

REVIEW OF THE RECENT MONETARY POLICY
11.
In the Monetary Policy Statement of February 2019, the Bank announced
a number of milestone policies, which principally include the
establishment of the inter-bank foreign exchange market and the
designation of the RTGS dollar as a unit of accounting for both the private
and government sectors in the economy.

12.
The Bank also adopted the monetary targeting framework for monetary
policy. Together with the subsequent removal of the multiple currency
system and upward review of the Bank rate in June 2019, the policies have
had significant positive impact on the economy, especially with regard to
restoration of sanity and stability.

13.
The introduction of the interbank foreign currency market was meant to
address the foreign currency grid-lock arising from widening parallel
market activities by harnessing foreign exchange through the formal
market. As a result, about US$ 799.0 million worth of foreign currency has
been traded on the interbank market since its introduction.

14.
Whilst the adverse side effects of the policies to restore macroeconomic
stability were anticipated, it is essential to note that the measures are now
beginning to bear fruit, with some stability being observed on both the
availability and price of foreign currency, with some significant positive
spill over benefits to the prices of goods and services in the economy. Other

supporting policy measures included reviewing the export retention
thresholds to more favourable levels, consistent with the new foreign
currency market reforms.

15.
In response to the fiscal and monetary reforms, the country witnessed an
improvement in the current account balance during the first half of 2019,
due to import compression following the expenditure-switching effects of
the introduction of the exchange rate, which has seen consumption moving
away from imported products to domestically produced goods.

16.
The current account deficit narrowed from a peak of US$2.7 billion in 2011
to US$1.4 billion in 2018 and is projected to further contract to US$597.2
million in 2019. This development augurs well with easing of pressures on
the foreign currency demand and exchange rate stability.

17.
The Bank has, however, gone a long way to contain money supply growth
through mopping up of excess liquidity and reducing central bank
financing of government deficits. Similarly, the exchange rate depreciation
has been contained and the interbank rate has stabilised following the
removal of the multiple currency system in June 2019.

18.
Notwithstanding these measures, annual inflation escalated from about
5.39 percent in September 2018 to 175.5 percent in June 2019, mainly
reflecting the exchange rate price indexation in an environment of high
premiums in the parallel market. Since the abolishment of the
multicurrency system and re-introduction of the Zimbabwe dollar in June
2019 as well as the upward reviewing of the Bank policy rate, the inflation
pressures are expected to dissipate. Both the annual and monthly inflation
are expected to moderate over time.

SECTION THREE

NEW MONETARY POLICY MEASURES
19.
The re-introduction of the Zimbabwean dollar presents renewed scope for
the Bank to conduct effective monetary policy. Accordingly, the Bank shall
vigorously pursue its primary objective of maintaining price and financial
stability, while complementing fiscal policy in line with the country’s
objective of becoming an upper middle income country by 2030.

20.
The following policy tools will be used to guide the Bank’s monetary
policy operations:

i.
Introduction of USD-denominated Savings Bonds

21.
In order to promote a savings culture and to provide reasonable return on
FCA Nostro account deposits and USD cash held by individuals and firms,
the Bank is with immediate effect, introducing USD-denominated Savings
Bonds alongside the current ZWL$ denominated Savings Bonds, with the
following features:
(i)
Interest rate of 7.5% per year;
(ii)
Minimum tenure of one year;
(iii) Tax Exemption, in line with Government policy;
(iv)
Liquid Asset Status;
(v)
Tradable; and
(vi)
Acceptable as collateral for overnight accommodation by the RBZ.

The interest rate on the ZWL$ Savings Bonds shall soon be reviewed to
take account of developments on the domestic Treasury Bill market and to
motivate banks to provide meaningful return on local currency deposits.

ii.
Easing Cash Shortages

22.
The re-introduction of the local currency and the subsequent withdrawal of
the US Dollar as a transactional currency implies that the Bank should issue
adequate notes and coins to support economic activity. The increase in the
demand for physical cash has worsened cash shortages, as reflected by
unending queues at most banks in the country. In addition, visitors to the
country including tourists are failing to access cash for their domestic
transactions, as they are supposed to buy local currency cash from banks
or bureaux de change. Failure to get cash is undermining the confidence in
the local currency as well as forcing economic agents to resort to the illegal
transactions in foreign currency and to selling cash at a premium.

23.
Our estimation, based on the country’s historical cash levels and practises
in neighbouring countries, shows that the currency in circulation should be
between 10-15% of broad money supply. Accordingly, without prejudice
to our cash-lite society drive which has served the country very well, the
Bank will continue to inject additional notes and coins on a gradual basis,
to support productive and lessen the inconvenience caused by physical cash
shortages to the transacting public. The cash injections will not result in an
increase in money supply as banks will use their existing RTGS balances
to exchange for cash.

iii.
Liquidity Management

24.
A tight monetary growth target will continue be implemented to promote
stability in the exchange rate and inflation.

25.
To support this, the Bank will take the necessary open market operations
(OMO) and utilise the instruments at its disposal to ensure that a tight
reserve money programme is implemented aimed at keeping reserve
money growth rate to no more than 10% by end of 2019. Given the recent
increase in reserve money, this will entail a reduction in reserve monetary
growth.

vi.
Credit Enhancing Policies

26.
The Bank remains concerned about the depressed levels of productivity
and their implications on both exchange rate stability and potential output
of the economy. In this regard, and consistent with the monetary targeting
framework, the Bank will introduce measures and incentives to encourage
banks to increase long term lending to enhance credit to the private sector
to support economic growth.

27.
Under this framework, banking institutions with loan maturities of above
two years in their loan portfolios will be able to use their commercial loan
instruments as collateral for borrowing from the Reserve Bank. This
measure is meant to break the cycle of short-termism in the credit market
as well as encourage banks to promote long term savings on their
portfolios.

28.
In addition, the Bank will also be deepening financial inclusion,
particularly aimed at enhancing access to finance by SMEs in consideration
of their growing role in the economy. The Bank shall, therefore, only
intervene on a targeted basis to support the productive sectors of the
economy under its special productive sector financing window in its role
as the lender of last resort to stimulate economic activity. The interest rate

under the productive sector financing window shall be linked to the
Treasury Bill rate as determined by the market.

v.
Capitalization of Banks

29. Banking institutions must continuously evaluate their capital adequacy in
relation to their risk profiles in view of the changing operating
environment. Against this background, all banking institutions are
therefore expected to proactively reinforce their economic capital levels in
order to ensure that the institution’s risks are well covered. Going forward,
all Tier 1 banking institutions are required to hold core capital of at least
ZWL$ 200 million by December 2020 in order to support risks associated
with their business activities.

30. The minimum capital requirements for banking institutions under Tier 2
and Tier 3 shall remain at the current levels and shall be reviewed next
year.

vi.
Forward Guidance

The country is moving towards bringing inflation under control and
lowering it over time after the initial burst of high inflation that followed
from the liberalisation of the exchange rate. In this regard, it is important
for the Bank to pursue the following:

(a) Overnight Bank Rate

Providing forward guidance on the major macroeconomic indicators,
including the desired and expected path of interest rates, exchange rates
and inflation. In this regard, the Bank’s rate for overnight borrowing has

been revised upwards from 50% to 70% to take account of developments
on inflation and the exchange rate. The Bank expects inflation to start
declining after the current high inflation cycle ends, as attested by ebbing
exchange rate depreciation pressures, following the removal of the multicurrency system.

b) RBZ Board and the Monetary Policy Committee
32.
Government has put in place a new Board of Directors and a Monetary
Policy Committee (MPC) with effect from September 2019, following the
expiry of the tenure of the current Board, which served the Bank for its full
statutory tenure of four years.

c) Effective Communication
33.
The Bank will be transparent in its monetary policy interventions in order
to anchor inflation expectations. In addition, the Bank shall also strengthen
communication with relevant stakeholders, including through the timely
publication of monetary and the Bank’s balance sheet data. This will be
aimed at promoting a two-way feedback mechanism that strengthens
stakeholder understanding of monetary policies.

CONCLUSION AND OUTLOOK

34.
The economy is transitioning to stabilisation. Measures put in place by
Government to strengthening fiscal sustainability and promoting a flexible
exchange rate system have therefore set the right conditions for a sustained
economic recovery and growth.

35.
The current levels of broad money supply of around ZLW$15 billion and
the country’s monthly foreign exchange receipts of US$400 million,
coupled with fiscal consolidation, should ideally go a long way in
stabilising the exchange rate and containing the pass-through effects of
exchange rate depreciation to inflation.

36.
Consequently, inflation is expected to stabilize to lower levels, after the
current cycle, which is largely influenced by the base effect and adverse
expectations or low confidence levels, has passed. The confidence
dividends from stable inflation and exchange rates will help anchor adverse
inflation expectations.

37.
Right sizing the economy was therefore a necessary step to transform the
economy towards a market based system which is consistent with the
national aspiration to become an upper middle income country by 2030.
This aspiration requires the country to increase productivity,
competitiveness, exports, confidence and social cohesion.

I thank you

John Mangudya
Governor

ANNEXURE

GLOBAL AND REGIONAL ECONOMIC DECVELOPMENTS
31.
Global economic growth is projected to slowdown in 2019, partly due to
weaker performance in Europe and Asia, as well as negative effects of the
trade wars between the United States and China. Furthermore, the protracted
uncertainty concerning Brexit is also posing a number of risks to the
Eurozone and the rest of the global economy.

32.
These developments represent a drag on global trade in general, in so far as
they weigh down on commodity prices. Accordingly, the International
Monetary Fund (IMF), in its April 2019 update of the World Economic
Outlook (WEO), projected global growth for 2019 at 3.3%, down from 3.6%
in 2018. Table 1 summarizes global economic growth developments and
prospects for selected regions and countries.

Table 1: Global Economic Growth & Outlook (%)

Proj.
World Output

Advanced Economies

US

Euro Area

Japan

Emerging Market & Developing Economies

China

India

Sub-Saharan Africa

Zimbabwe1

Latin America & the Caribbean

Source: IMF World Economic Outlook (April 2019)


1 Zimbabwe growth rates are from Treasury, Reserve Bank & Zimstat

33.
In line with the aforementioned global developments, regional growth
prospects for the sub-Saharan Africa (SSA) remain constrained at levels
below 6% across the continent. SSA economies are, however, projected to
grow by 3.5% in 2019, up from 3.0% in 2018.

34.
The anticipated slowdown in global growth has also affected Zimbabwe’s
economic prospects for 2019, being a small open economy which had
already been plagued by unfortunate natural disasters such as drought and
Cyclone Idai, and the impact of climate change.

35.
Zimbabwe’s growth prospects for 2019 are further weighed down by the
persistent foreign currency shortages and constrained spending being
imposed by fiscal austerity reforms, as well as the inescapable depressed
demand for our exports resulting from the slowdown in the growth of the
global economy.

International Commodity Price Developments
36.
The international commodity prices displayed varied trends over the first 6
months of 2019, with some commodities registering gains, while others
receded. Precious metal prices, particularly gold, recorded strong growth as
a weaker US dollar and volatile equity markets on the back of weak US
economic data heightened fears of a global economic slowdown.
Furthermore, the Brexit turmoil and a dovish stance by the U.S. Federal
Reserve signalled a potential slowdown in the pace of rate hikes in the 2019
outlook. These developments are likely to boost safe haven demand for
precious metals, which would benefit our mineral exports.

37.
Already, base metal prices, which had for long been hurt by the trade wars
between the United States and China, somewhat rebounded on the back of

supply disruptions in some markets. The rebound was also underpinned by
fears of shortages, amid supply disruptions and the positive demand outlook
prompted by the expectation of a fiscal stimulus in China.

38.
Global energy prices eased, as oil prices dropped due to the increase in
supply that emanated from a temporary waiver in United States sanctions on
Iranian oil exports to some countries. The record-high US crude oil
production also exerted downward pressure on prices. Oil prices are,
however, showing some signs of recovery owing to production cuts by the
Organization of Petroleum Exporting Countries (OPEC). Lower oil prices
will benefit us in terms of reduced pass-through effects to domestic inflation.

39.
Commodity price indices for the period from January 2015 to June 2019 are
shown in Figure 1.

Figure 1: Commodity Price Indices (2010 = 100)
Source: World Bank

Energy
Agriculture
Base Metals
Precious Metals

Gold Deliveries to Fidelity Printers & Refineries (FPR)
40.
Gold deliveries to Fidelity Printers and Refineries stood at 12.3 tonnes for
the period January to June 2019. This was a 40.6% decline compared to 17.3
tonnes that were delivered during the comparative period in 2018. Exchange
rate, pricing and payment issues, which partly accounted for the decline in
deliveries have, however, been largely resolved through the recent monetary
policy measures.

41.
It is, however, pleasing to note that small scale producers, despite facing a
plethora of challenges, continued to dominate the country’s gold deliveries,
accounting for more than 60% of total deliveries. Primary producers
contributed the remainder as shown in Figure 2 below:

Figure 2: Gold Purchases by Fidelity Printers and Refiners (kilograms) –
January to June 2019

Source: FPR, 2019


January
February
March
April
May
June
Primary producers
Small Scale producers
Total Gold Purchased (RHS)

Foreign Exchange Receipts

42.
Total foreign exchange receipts (including exports, international
remittances, offshore loan proceeds, income receipts and foreign investment
proceeds) for the period January to June 2019, amounted to US$2.58 billion,
compared to US$3.40 billion received during the same period in 2018,
representing a 24.0% decrease. Table 2 shows foreign exchange receipts as
at 30 June 2019.

Table 2: Global Foreign Exchange Receipts as at 30 June 2019
(USD Millions)
Source of Receipt
30 June

30 June

%
Change
Mining
1,240.0
1,542.2
-19.6%
Manufacturing
80.5
70.7
13.9%
Agriculture (including Horticulture &
Tobacco)
318.2
353.0
-9.9%
Tourism
62.0
89.2
-30.5%
Transport
89.2
119.8
-25.5%
Telecommunications
6.5
2.1
209.5%
General Services
20.0
30.1
-33.6%
Income Receipts
39.0
18.8
107.4%
External Loan Disbursements
207.4
574.5
-63.9%
Foreign Investment
14.4
14.6
-1.4%
International Money Transfers
504.7
581.3
-13.2%
Total foreign Currency Receipts
2,581.9
3,396.3
-24.0%
Source: Exchange Control Records (2019)

Export Shipments

43.
Export shipments for the period January to June 2019 stood at US$1.90
billion, a 7.5% decrease from US$2.06 billion registered during the
comparable period in 2018. Table 3 shows export shipments by sector.

Table 3: Export Shipments (USD Millions)
Sector
30 June 2019
30 June 2018
% Change
Mining
1,314.20
1,534.30
-14.30%
Tobacco
281.4
203.9
38.00%
Manufacturing
127.9
106.5
20.10%
Agriculture
112.5
70.5
59.60%
Transport
44.7
99.9
-55.30%
Horticulture
13.6
16.6
-18.10%
Tourism (Hunting)
3.3
5.8
-43.10%
Postal & Telecommunications
2.2
3.9
-43.60%
Other Services (Construction, etc)
4.4
17.5
-74.90%
Total
1,904.20
2,058.90
-7.50%
Source: Exchange Control Records (2019)

Foreign payments also declined by 3%, from US$45.8 million in 2008 to
US$24.5 million in the comparable period in 2019.

Table 4: Foreign Payments for the period January - June (US$)
Sector

Variance
% change
Retail and distribution

Services

Manufacturing

Mining

Agriculture

Individuals

Total

Source: Exchange Control Records (2019)

BALANCE OF PAYMENTS DEVELOPMENTS
44.
The country’s external sector position is showing signs of improvement,
with the current account deficit projected to narrow further by end of 2019.
This is largely on account of a slowdown in imports, against a background
of an improvement in the country’s export earnings.

45.
The current account, for the first time since the adoption of the
multicurrency, registered a surplus in the first quarter of 2019, reflecting a
sharp contraction in imports, against a moderate increase in export exports.

46.
Cumulative exports for the five-month period up to May 2019 stood at
US$1,558.2 million, a 5.1% increase from US$1,482.9 million realized in
the comparable period in 2018. The increase in exports was bolstered by
higher export earnings for nickel, tobacco, diamonds and jewellery.

Figure 3: Merchandise Exports (US$ m) January - May 2018 & 2019

Source: Zimstat, 2019

Major Exports and Imports

47.
The country’s exports for the period January to May 2019 were mainly
destined for the South African, Asian and European markets. South Africa
continues to be the major destination for the country’s total merchandise
exports, absorbing about 46%. Major exports to South Africa include
platinum group of metals (PGMs), gold and nickel, among others.

48.
On the contrary, merchandise imports for the first five months of 2019
sharply declined from US$2,747.7 million in the comparative period in 2018
to US$1,957.2 million, a 28.8% decline as shown as shown in Figure 4.


1,482.9
1,558.2

1,200
1,700

January - May 2017 &


Jan
Feb
Mar
Apr
May
Monthly Merchandise
Exports Jan-May 2019

Figure 4: Merchandise Imports January-May 2018 & 2019 (US$m)

Source: ZIMSTAT & RBZ Computations

49.
Imports for the period January to May 2019 were mainly composed of diesel
(18.8%), petrol (9.3%), medicines (2%) and crude soya bean oil (1.4%).

50.
The country continues to source most of its imports from South Africa and
its fuel from Singapore. During the period January to May 2019, the
country’s imports were mainly obtained from South Africa (34.9%),
Singapore (28.7%), China (9.2%), India (2.6%) and the UK (2.4%).

51.
The cumulative trade deficit between January and May 2019 stood at -$399
million which is a significant improvement from a deficit of -$1,264.8
million, incurred in the same period in 2018.

52.
Merchandise imports have been declining due to foreign exchange shortages
and the effects of the austerity measures being implemented by Government.
This has resulted in the narrowing of the trade deficit since September 2018.

2,747.7
1,957.2

1,000
2,000
3,000
Jan-May 2018
Jan-May 2019
Imports-Jan-May 2018 & 19
366.7

329.1
416.7
436.8

Jan
Feb
Mar
Apr
May
Merchandise Imports- 2019

EXCHANGE RATE DEVELOPMENTS

53.
The introduction of the new currency has greatly assisted in reducing the
premium between the parallel market rate and official exchange rate from
above 60% to current levels of around 5-10%. The graph below depicts the
developments in the interbank and the parallel exchange since the
introduction of the interbank market in February 2019.

Figure 5: Exchange Rate Developments: February - May 2019

25-Feb
4-Mar
11-Mar
18-Mar
25-Mar
1-Apr
8-Apr
15-Apr
22-Apr
29-Apr
6-May
13-May
20-May
27-May
3-Jun
10-Jun
17-Jun
24-Jun
1-Jul
8-Jul
INTERBANK RATE
PARALLEL RATE


Figure 6: Parallel Market Premium (%)

Source: RBZ, 2019

54.
The use of letters of credit to support critical imports such as fuel and
cooking oil is also assisting to reduce the demand for foreign currency,
which would arise in the event of once-off payments and thus assisting in
stabilizing the exchange rate.

MONETARY DEVELOPMENTS
Reserve Money
55.
The Reserve Bank of Zimbabwe has adopted the Monetary Targeting
framework to curtail the rise in money supply as a way of dealing with
inflationary pressures in the economy. Under this framework, the Bank will
use base money as the operating target of policy, and this has been pegged
at 8-10% by year end. In this regard, Reserve Money recorded year on year
growth of 7.05% in May 2019, down from 36.11% in April 2019. The
slowdown in reserve money growth is largely attributed to active liquidity
mopping by the Central Bank through saving bonds issuances, as well as
RBZ foreign exchange sales to the inter-bank market. If this path is

25-Feb
4-Mar
11-Mar
18-Mar
25-Mar
1-Apr
8-Apr
15-Apr
22-Apr
29-Apr
6-May
13-May
20-May
27-May
3-Jun
10-Jun
17-Jun
24-Jun
1-Jul
8-Jul

maintained, the country would meet its reserve money growth target of 10%
by year end.

Figure 7: Reserve Money Developments

Source: RBZ, 2019

56.
To contain money supply growth, Government instituted other
complementary measures from the fiscal side. On this note, the RBZ lending
to Government has not increased, reflecting fiscal consolidation measures
being pursued by Government since the second half of 2018, under the
Transitional Stabilisation Programme (TSP).

57.
Broad money supply, however, recorded a year on year growth of 57.51%,
from $8 258.92 million in May 2018 to $13 009.04 million in May 2019.
The growth, partly reflects expansion in Foreign Currency Account (FCA)
deposits, caused by the movement of the exchange rate, from 1:1 to about
1:8. The re-denomination of the foreign currency positions into local
currency resulted in inflated balances, hence the increase in money supply.

-

Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
Jan-19
Feb-19
Mar-19
Apr-19
May-19
%
USUS$ BILLIONS
Annual Growth

Figure 8: Broad Money Supply (M3)

Source: RBZ, 2019

Private Sector Credit
58.
Credit to the private sector which has remained largely subdued, grew on an
annual basis by 16.20%, from $3 800.88 million in May 2018 to $4 416.52
million in May 2019. This growth is, however, not sufficient to propel GDP
on a growth trajectory.

Net Foreign Assets (NFA)
59.
The overall net foreign assets (NFA) position worsened, due to contraction
of new external loans to support importation of fuel, electricity, drugs and
other essentials, coupled with the effect of exchange rate depreciation. This
resulted in the Net International Reserves (NIR) position of the RBZ, at –
US$1 748 million in May 2019, exceeding the June 2019 Staff Monitored
Program (SMP) target of –US$1 267 million.

INFLATION
60.
Inflation remains the major challenge facing the economy at the moment.
Annual headline inflation accelerated from 56.9% in January 2019 to

-

May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
Jan-19
Feb-19
Mar-19
Apr-19
May-19
%
USUS$ BILLIONS

175.5% in June 2019. The inflation developments mainly reflected exchange
rate adjustments, following a phased approach to currency reforms, which
culminated in the simultaneous abolishment of the multicurrency regime and
re-introduction of the Zimbabwe dollar, on 24 June 2019. Figure 9 shows
the recent trends in inflation.

Figure 9: Annual Inflation Profile (%)

Source: Zimstat, 2019

61.
The apparent spike in inflation in June 2019, in particular, reflected
continued speculative pricing tendencies; the factoring in of exchange rate
depreciation; implicit benchmarking of prices in US dollars; as well as
deliberately high and unfair prices in RTGS, ostensibly aimed at forcing
consumers to pay for goods and services in foreign currency. These
speculative tendencies were significantly addressed by the abolition of the
multicurrency system, and we expect the practices to have subsided by the
end of July 2019.

62.
Stability in the foreign exchange market, following the introduction of the
local currency and successful fiscal consolidation efforts by Government,

Apr-16
Jun-16
Aug-16
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
Feb-18
Apr-18
Jun-18
Aug-18
Oct-18
Dec-18
Feb-19
Apr-19
Jun-19
Annual Inflation
Monthly Inflation

have laid a strong foundation for a disinflationary trend in the economy.
Further, the Bank is now in a position to effectively implement monetary
policy to contain inflation.

63.
Despite the elevated risks to inflation, emanating mainly from adverse
inflation expectations and some lingering price distortions, which require
fine tuning, the Bank is fully committed to containing money supply growth,
to ensure long-term price stability in the economy.

64.
Though inflation is likely to remain elevated in the near-term and even
breach the 200% mark, we expect annual inflation to start declining from
October 2019, and to moderate by the end of the year.

65.
The major outstanding challenge in winning the inflation battle, is to ensure
that funding for inescapable Government expenditures, such as grain
imports, fuel and summer cropping working capital requirements, are
contained within budget, so as to minimize recourse to potential inflationary
Central Bank financing.

FINANCIAL SECTOR DEVELOPMENTS
66.
Despite the operational challenges in the macro-economic environment, the
banking sector remains safe and sound.

67.
The improved financial strength registered by the banking sector is on the
back of various Government led policies and programmes, as well as
strategic measures being implemented by the Reserve Bank of Zimbabwe,
to bolster public confidence in the sector.

68.
The Government’s elevated efforts to clear international debts and reengagement with the international community, is expected to attract fresh
external lines of credit and unlock liquidity for the sector.

69.
A strong financial system is considered critical to ensure a meaningful
financial intermediary role and spur the much needed economic growth.

70.
In light of the above, all financial soundness indicators depicted satisfactory
condition and performance of the banking sector as at 31 March 2019, as
evidenced by adequate capitalisation, expanded asset base, satisfactory asset
quality and earnings performance.

71.
Such resilience has been mainly attributable to financial stability
enhancements by the Reserve Bank, including operationalisation of the
credit reference system, supported by appropriate strategic responses by
banking institutions, notably; cost rationalisation, enhanced risk
management, and technological innovation.

BANKING SECTOR ARCHITECTURE
72.
As at 30 June 2019, the number of operating banking institutions were
nineteen (19), comprising thirteen (13), commercial banks, five (5) building
societies, and one (1) savings bank as shown below.

Table 5 : Architecture of the Banking Sector
Type of Institution
Number
Commercial Banks

Building Societies

Savings Bank

Total Banking Institutions

Other Institutions under RBZ Supervision

Development Financial Institutions

Deposit-taking Microfinance Institutions

Credit-only Microfinance Institutions

Total

PERFORMANCE OF THE BANKING SECTOR
73.
The banking sector remained generally stable and continued to exhibit
resilience, buoyed by adequate capitalisation, sustained earnings
performance, satisfactory asset quality and improved liquidity position for
the period ended 30 June 2019.

74.
There is, however heightened exposure to foreign exchange rate risk, which
has impacted on the earnings positions of a few institutions. The financial
soundness indicators for the period under review are provided in the Table
6 below.

Table 6:
Financial Soundness Indicators
Key Indicators
Benchmark June-18 Dec-18
Mar-19 June-19
Total Assets
-
$12.35bn $13.98bn $15.40bn $23.54bn
Total Loans &
Advances
-
$4.08bn
$4.22bn $4.44bn $6.17bn
Net Capital Base
-
$1.61bn
$1.83bn $2.09bn $3.31bn
Total Deposits
-
$9.53bn $10.32bn $11.00bn $16.92bn
Net Profit
-
$176.09m $425.26m $78.05m $929.95m
Return on Assets

Return on Equity

Capital Adequacy Ratio

Tier 1 Ratio

Loans to Deposits

Non-Performing Loans
Ratio

Liquidity Ratio


Capitalisation
75.
The banking sector remained adequately capitalized, with aggregate core
capital of $2.33 billion as at 30 June 2019, representing a 47.63% increase
from $1.58 billion as at 31 December 2018. The growth in capital was
mainly attributed to capitalisation of retained earnings. As at 30 June 2019,
all banking institutions were compliant with the prescribed minimum capital
requirements as shown in Table 7 below.

Table 7:
Banking Sector Capitalisation ($ million)
Institution
Core Capital
as at 31
Core Capital as
at 30 June 2019
Prescribed
Minimum
CBZ Bank & Society
168.15
268.08

Stanbic Bank
162.22
186.39

First Capital Bank
107.17
174.52

Ecobank
104.14
424.31

FBC Bank
93.64
166.25

ZB Bank & Society
87.94
106.00

BancABC
86.72
73.96

Steward Bank
86.58
82.84

Standard Chartered
84.84
118.76

NMB Bank
76.72
150.85

Agribank
74.36
73.55

Nedbank Zimbabwe
70.01
80.68

Metbank
65.88
67.00

BUILDING


CABS Building
146.45
172.90

FBC Building Society
47.07
47.23

National Building
46.03
50.63

SAVINGS BANK


POSB
69.33
73.25
-
Total
1,577.25
2,328.56
-

76.
The average capital adequacy and tier 1 ratios of 32.64% and 27.24% as at
30 June 2019, respectively, were above the regulatory minima of 12% and
8%, respectively. All banking institutions complied with the minimum
regulatory capital adequacy and tier 1 ratios.

Banking Sector Deposits
77.
Total banking sector deposits amounted to $16.92 billion as at 30 June 2019,
an increase of 63.95% from $10.32 billion as at 31 December 2018. The
figure below shows the trend of banking sector deposits over the period 31
December 2014 to 30 June 2019.

Figure 10: Trend of Banking Sector Deposits ($ million)


78.
The increase in the deposit base during the period under review is mainly
attributable to the revaluation of foreign currency denominated deposit
balances. The deposit base for the banking sector is dominated by demand
deposits which accounted for 72.72% ($10.13 billion) of the total non-bank
deposits, as shown in the figure below.

Figure 11: Composition of Deposits as at 30 June 2019


31-Dec-14
31-Dec-15
31-Mar-16
30-Sep-16
31-Dec-16
31-Mar-17
30-Jun-17
30-Sep-17
31-Dec-17
31-Mar-18
30-Jun-18
30-Sep-18
30-Dec-18
31-Mar-19
30-Jun-19
Demand Deposits
72.72%
Savings Deposits
3.96%
Time Deposits
9.29%
FCAs
12.39%
Negotiable Certificates of
Deposits
1.63%

Loans and Advances
79.
Total banking sector loans and advances increased by 46.21%, from $4.22
billion as at 31 December 2018 to $6.17 billion as at 30 June 2019. The total
banking sector loans and advances also include foreign currency
denominated loans, whose translation partly explains the growth in total
loans during the period under review.

80.
The level of the banking sector financial intermediation has, however
remained subdued as reflected by the loans to deposits ratio of 36.49%,
largely as a result of cautious lending approach adopted by some banking
institutions. Figure 12 below shows the trend in the total banking sector
loans and advances.

Figure 12 : Banking Sector Loans (Dec 2014 - June 2019 ZWL$M


81.
Loans to productive sectors of the economy constituted 73.80% of total
sector loans as at 30 June 2019, as shown in the diagram below.


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

Figure 13 : Sectoral Distribution of loans as at 30 June 2019


Loan Portfolio Quality
82.
The quality of the banking sector loan portfolio continued to improve,
reflected by the decline in the non-performing loans (NPLs) to total loans,
from 6.92% as at 31 December 2018 to 3.95% as at 30 June 2019. The
improvement in the NPLs ratio, was a result of a combination of an increase
in total banking sector loans and advances coupled with a 30% decrease in
the total non-performing loans from $348.83 million as at 31 December
2018 to $243.78 million as at 30 June 2019.

83.
Figure 14 below shows the trend in the level of non-performing loans to total
loans ratio (NPLs ratio) from December 2014 to June 2019.


CONSUMPTIVE
17.75%
OTHER
8.45%
AGRICULTURAL
19.29%
MANUFACTURING
8.05%
COMMERCIAL
6.10%
MINING
4.21%
DISTRIBUTION
11.82%
CONSTRUCTION
1.92%
TRANSPORT
0.81%
COMMUNICATION
0.30%
FINANCIAL
1.77%
MORTGAGE
19.54%
PRODUCTIVE
[73.80]

Figure 14 : Non-Performing Loans to Total Loans Ratio


Earnings Performance
84.
During the period under review, all banking institutions, except one (1) were
profitable in their operations. In comparison to the corresponding period in
2018, the banking sector recorded a significant increase in aggregate profits,
from $176.09 million for the half-year ended 30 June 2018 to $929.95
million for the half-year ended 30 June 2019.

85.
Earnings performance was partly buoyed by foreign exchange translation
gains for a number of institutions while on the contrary, the loss recorded by
one (1) banking institution emanated from foreign exchange translation
losses. The institution is, however, instituting measures to turn around its
earnings performance.

86.
Non-interest income comprising income from foreign exchange and fees &
commissions were the key revenue driver in the sector during the period
under review, as shown in the chart below.


Dec-14 Dec-15 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19
Level of NPLs Ratio

Figure 15: Income Mix as at 30 June 2019


Banking Sector Liquidity
87.
The average prudential liquidity ratio as at 30 June 2019 was 64.77%
compared to 70.66% as at 31 December 2018. As at 30 June 2019, two (2)
banking institution were non-compliant with the minimum prudential
liquidity ratio of 30%. The non-compliant banking institutions are taking
measures to ensure compliance with the minimum prudential liquidity ratio.
The figure below shows the trend in the banking sector average prudential
liquidity ratio from March 2015.


Interest Income
from Loans
Advances and
Leases
15.01%
Interest Income on
Balances with
Banking Institutions
0.96%
Interest Income On
Investments ans
Securities
10.55%
Foreign Exchange
30.36%
Fees and
Commission
21.19%
Other Non Interest
Income
21.92%
Income Mix as at 30 June 2019

Figure 16: Prudential Liquidity Ratio Trend (%)


88.
The prudential liquidity ratio has remained high reflective of the cautious
approach to lending with increased investments in securities.

STATUS OF BANKS UNDER RESOLUTION
89.
The Deposit Protection Corporation (DPC) was appointed Liquidator of six
(6) failed institutions currently in final liquidation; as well as Provisional
Judicial Manager (PJM) of one (1) failed institution.

90.
As at 30 June 2019, 22,697 out of 54,909 depositors had been compensated
from the Deposit Protection Fund; representing about $3.96 million against
an exposure of $6.4 million. The table below provides a synopsis of deposit
insurance payments in respect of the six (6) failed banking institutions under
liquidation.


Mar-15
Mar-16
Mar-17
Mar-18
Dec-18
Mar-19
Jun-19
industry average
minimum requirement

Table 8: Deposit Insurance Payments as at 30 June 2019
Name of
Institution
Total
Depositor
s
No. of
Depositor
s paid
% of
Depositors
paid
Exposure
Deposits
payable at
$500($)
Value of
Depositors
paid ($)
% of
Total
deposits
Gross
Deposits
$
Royal Bank

Trust Bank
2,958


Genesis


Allied Bank

Interfin Bank
13,021


Afrasia

Total

54,909
22,697
41%


Source – Deposit Protection Corporation

91.
The table below summarizes the statuses of the seven (7) failed institutions
as at 30 June 2019. Total recoveries in cash, treasury bills and properties
were $96.4 million, which translate to a 36% recovery rate to date. Total
dividends paid out to creditors of the six (6) failed institutions under
liquidation increased by 17% from $28.6 million to $33.4 million over the
quarter.
Table 9: Status of Banks under Resolution* as at 30 June 2019
Institution
Total
Assets
Total
Liabilities
Total
Recoveries
Value Of
Preferred
Claims
Payments
To
Preferred
Creditors
Dividend
Paid -
Concurrent
Creditors
Dividend To
Secured
Creditors

GENESIS
BANK

$2.2 m
$5.1 m
$0.62m
$170,178
$162,456
$231,000
$207,931
ROYAL
BANK

$5.3 m
$12.6m
$2.85 m
$2.11 m
$938,275
Nil
$208,138
TRUST BANK

$13 m
$26.7 m
$8 m
$3.54 m
$1.5 m
$3.2m
$834,043
INTERFIN
BANK

$24.3 m
$144.2 m
$41.3m
$2.36 m
$1.7m
$8.4m
$7.28 m

ALLIED
BANK

$9.5 m
$34.5 m
$2.7m
$2.4 m
$142,497
Nil
-
AFRASIA
BANK

$39.1 m
$61 m
$16m
$3.9 m
$3.5m
$4.8m
$157,320
TETRAD
PJM lifted
30.10.18
$46 m
$66 m
$28.3 m
-
-
--

TOTALS
$139.4 m
$350.1 m
$96.4 m
$17.14 m
$8m
$16.7m
$8.68 m
* All the institutions are under final liquidation except Tetrad whose provisional judicial management
order was uplifted on 30 October 2018 and returned to its shareholders

FINANCIAL STABILITY INITIATIVES
Basel II/III Implementation
92.
As part of ongoing measures to enhance the stability and resilience of the
financial system, the Reserve Bank is developing local guidance on the
implementation of Basel III capital and liquidity framework. The framework
is designed to improve the quality, consistency and transparency of capital
and reduce pro-cyclicality, as well as enhance liquidity management.

Macro-prudential policy framework
93.
Pursuant to my last Monetary Policy Statement, I am pleased to advise that
the Reserve Bank has developed a Macro-prudential Framework. The
Framework, which provides for effective macro-prudential tools,
appropriate governance arrangements, and systemic risk assessment, will be
operationalised in due course.

International Financial Reporting Standard 9 (IFRS 9)
94.
In a milestone development in financial reporting, all banks published IFRS
9 Compliant Financial Statements for the year ended 31 December 2018.
The forward looking nature of provisioning requirements as well as
expanded disclosure requirements significantly enhance bank risk
management and reinforce market discipline.

ENHANCEMENT OF CREDIT INFRASTRUCTURE
Credit Registry
95.
The credit referencing environment continues to improve against the
background of increased coverage for the Credit Registry and Credit
Bureaus, as well as depth of credit information. As at 30th June 2019 the
Credit Registry held 1,044,538 records, of which 525,967 were active loan
accounts. Individual records represented 98.4% of the active loan records.

96.
Total subscribers as at 30 June 2019 were 174, from 162 as at 30 September
2018, comprising 18 banking institutions, 152 MFIs (including SMEDCO),
Depositor Protection Corporation and 3 non-banks. Credit Registry usage
levels by subscribing institutions increased steadily to a cumulative 566,298
reports as at 30 June 2019.

Figure 17: Cumulative Credit Registry Inquiries: June 2017 – June 2019


97. In a bid to augment efficiency of the Credit Registry, the Reserve Bank
implemented value-added products aimed at facilitating in-depth analysis of
credit data for risk management and policy making purposes.

Collateral Registry
98. The Reserve Bank is in the process of establishing a Collateral Registry to
operationalize the Movable Property Security Interests Act [Chapter 14:35].
The Collateral Registry is expected to promote access to credit by
marginalised and financially-excluded groupings.


Jun-17
Sep-17
Dec-17
Mar-18
Jun-18
Sep-18
Dec-18
Mar-19
Jun-19

99. The procurement process of suitable software for the Collateral Registry is
ongoing and the system is expected to be acquired and deployed during the
course of 2019. The Collateral Registry Regulations to operationalize the
Movable Property and Security Interests Act will be finalised in line with
operational specifications of the deployed collateral registry system.

FINANCIAL TECHNOLOGY (FINTECH)
100. The world has experienced a proliferation of technology and innovations
that have significantly altered the financial landscape and the way financial
institutions offer services and products. This has the potential to promote
economic growth and development.

101. Zimbabwe has not been spared from these technological innovations, which
are significantly altering the financial landscape. The Reserve Bank
recognises the important role of fin-tech and innovation and the need to
harness and leverage on the technology advancements to enable the financial
services industry to offer wide range of products and services.

102. Notwithstanding the benefits, the new technological innovations bring to the
fore additional risks that should be mitigated in a manner that balances
innovation and financial stability. This underscores the significance of
constantly reflecting on the emerging fin-tech trends and broader changes
affecting the financial services industry.

103. As a result of the technological developments, there has been a surge in the
number of enquiries and proposals from local and foreign companies
intending to offer Financial Technology (Fintech) services and products in
the country.

104. The Reserve Bank has embedded innovation and technology transformation
in the core of it operations. The Reserve Bank is thus committed to
promoting a legal and regulatory environment supportive of innovation and
the adoption and usage of Fintech by financial institutions while ensuring
attendant risks are identified and mitigated.

105. Against this background, a National Fintech Steering Committee comprising
government line ministries, government departments and regulatory
agencies was constituted to provide strategic policy direction in the Fintech
space.

106. In addition, an Interagency Fintech Working Group (IFWG), comprised of
technical staff across government line ministries, government departments
and regulatory agencies as well as relevant stakeholders was constituted.
The IFWG is supported by the following thematic working committees:
a) Legal/Regulatory;
b) Crypto Assets and Digital Currencies;
c) Innovation/Technical; and
d) Consumer Protection.

107. The objective of this collaborative effort is to come up with a National
Fintech Strategy. Notably, there is need to put in place a regulatory
framework to avoid regulatory arbitrage, create an enabling environment for
Fintech as well as a consistent approach in understanding and regulating
Fintech, build consumer awareness and education and establish institutional
arrangements to ensure a coordinated approach among stakeholders.

OTHER DEVELOPMENTS IN THE BANKING SECTOR
Lion Microfinance Limited
108. Lion Microfinance Limited was placed under the management of a Curator
with effect from 25 July 2019, for a period of three months in terms of the
Microfinance Act [Chapter 24:29]. The decision followed a determination
that the institution was not in a sound financial condition mainly due to
critical undercapitalization and weak corporate governance. The Deposit
Protection Corporation was appointed curator of Lion Microfinance
Limited.
Lending rates
109. The inflationary pressures in the obtaining macroeconomic environment
have resulted in negative real returns. Against this background and coupled
with the increase in overnight interest rate to 50%, most banking institutions
have revised their lending rates upwards to sustain operations. Banking
institutions also took cognisance of the likely negative impact of high
interest rates on borrowers’ repayment capacity.
110. The lending rates reported by banking institutions range from 18% to 35%
per annum for individual loans and 12% to 25% per annum for productive
loans including mortgage loans.

111. The Reserve Bank, however, continues to urge banking institutions to ensure
provision of affordable banking services and increased access to credit
through maintenance of fair business practices and adherence to responsible
pricing taking into account the application of the know your customer
(KYC) principles on an on-going basis.

Afrexim Bank Initiative, Africa’s Due Diligence Data, MANSA
Platform
112. During the period under review, the Reserve bank signed a Verifer Charter
with Afrexim bank in order to contribute and access data from the MANSA
platform.

113. The goal of MANSA platform is to facilitate access to information necessary
for conducting Know Your Customer (KYC), Anti – Money Laundering
(AML) and Counter Terrorism evaluations thereby reducing compliance
costs with respect to African trade and project finance transactions thereby
opening opportunities to access finance from international investors and
potential business partners.

Legal Developments
The Microfinance Bill, 2018
114. The Bill is still undergoing the parliamentary process. The Microfinance
Bill, 2018 was published on 21 December 2018. The Bill will amend the
Microfinance Act [Chapter 24:30] to achieve the following objectives:
a) to provide for perpetual licences for deposit-taking microfinance
institutions and credit only MFIs, subject to cancellation in the same manner
as traditional banking institutions;
b) to reduce confusion and overlapping, the Bill will amend the Microfinance
Act to recognise only two institutions in the microfinance sector, i.e. creditonly microfinance institutions and deposit-taking microfinance institutions;
and
c) to enhance corporate governance and risk management practices within the
microfinance sector.

Proposed Amendments to the Banking Regulations
115. In order to align the Banking Regulations SI 205 of 2000 with the Banking
Act, proposals for amendment of the Banking Regulations are under
consideration of the following aspects:
a) reducing significant interest threshold from 10% to 5% in line with the new
section 15B (1) of the Banking Act;
b) increasing the maximum shareholding that an ordinary company can have
in a banking institution from 10% to 25% in line with the new threshold in
section 15A (1) of the Banking Act. The Banking Act was amended in 2015
to increase the threshold from 10% to 25%;
c) providing for the disclosure of interests form as required under the new
section 20B of the Banking Act; and
d) providing for the maximum amount, which can be lent to an insider without
board approval.

PERFORMANCE OF THE MICROFINANCE SECTOR
116. In line with its role as a pillar of the National Financial Inclusion Strategy
and a driver of sustainable economic development, the microfinance sector
continued to make significant inroads in empowering the low income and
marginalised groups through provision of innovative financial products and
other non-financial services.

117. As at 31 March 2019, the microfinance sector had a total of 210
microfinance institutions comprising of 204 credit-only microfinance
institutions and six (6) deposit-taking microfinance institutions.

118. A summary of the key performance indicators for the microfinance sector is
indicated in the table below.

Table 10 : Microfinance Sector, Key Performance Indicators
Indicator
Mar-18 June-18
Sep -18
Dec-18
Mar-19
Number of Licensed Institutions

190 196

Total Loans ($m)

Total Assets ($m)

Total Equity ($m)

Net Profit ($m)

Average Operational SelfSufficiency (OSS)
142.92% 154.76% 114.45% 153.11%
142.29%
Total Deposits (DTMFIs) ($m)

Number of Savings Accounts
(DTMFIs)

Portfolio at Risk* (PaR>30 days)

Number of Active Loan Clients
282,024 276,660 288,858
349,341
402,295
Number of Female Borrowers
107,226 107,566 153,980
161,023
160,074
Number of Outstanding Loans
296,544 297,843 323,129
393,219
440,032
Number of Branches

* Portfolio at Risk [30] days-The value of all loans outstanding that have one or more instalments of
principal past due more than [30] days. This includes the entire unpaid principal balance, including
both the past due and future instalments, but not accrued interest. It also includes loans that have been
restructured or rescheduled.

Microfinance Outreach
119. The microfinance sector registered a 15.16% increase in the number of
active clients over the quarter from 349,341 as 31 December 2018, to
402,295 as at 31 March 2019, with women borrowers accounting for 39.79%
of the total number of active clients. Women borrower’s accessed 25.17%

($111.54 million) of the total microfinance sector loans of $443.12 million
as at 31 March 2019.

Capital and Funding
120. Funding continues to be the major challenge militating against increased
outreach and development of sustainable financial institutions for the low
income and the marginalised, as the majority of microfinance institutions
lack anchor institutional investors. The sector registered a marginal increase
in aggregate equity over the review period from $197.85 million as at 31
December 2018, to $200,30 million as at 31 March 2019.

121. The Reserve Bank continues to encourage consolidation in the sector and
attraction of institutional anchor investors in order to come up with
stronger, well-funded microfinance institutions that are able to contribute
more meaningfully to the national development agenda.

122. The deposit-taking microfinance institutions (DTMFI) subsector registered
an improvement in capitalisation over the review period from $60.10 million
as at 31 December 2018, to $70.23 million as at 31 March 2019. The
improvement was largely attributed to capitalisation of retained earnings by
some of the DTMFIs.

Microfinance Sector Lending and Portfolio Quality
123. Total loans outstanding for the microfinance sector amounted to $443.12
million as at 31 March 2019, up from $387.87 million as at 31 December
2018. Growth in the sector loans is hampered by limited funding within the
individual microfinance institutions, which have been relying on owners’
funds which are grossly inadequate to meet the demand for loans.

124. The sector registered an improvement in the portfolio quality as reflected by
the portfolio at risk (PaR >30 days) ratio of 8.02% as at 31 March 2019,
down from 10.51% as at 31 December 2018.

125. The trend in the microfinance sector loan portfolio growth and quality is
indicated in the figure below.

Figure 18: Microfinance Sector Trends in Total Loans & PaR Ratio


126. The Reserve Bank continues to encourage microfinance institutions to
adopt proper lending methodologies, based on transparency, thorough
client assessment, and financial education in order to maintain a strong
portfolio quality.

Sector Profitability
127. The microfinance sector registered a decline in profitability, with aggregate
net profit of $4.98 million for period ended 31 March 2019 which represents
$164.20 $156.99
$187.16
$206.28
$254.04
$272.95
$297.52 $351.39
$387.87
$443.12

$0.00
$50.00
$100.00
$150.00
$200.00
$250.00
$300.00
$350.00
$400.00
$450.00
$500.00

Mar-18
Jun-18
Sep-18
Dec-18
Mar-19
Total Loans ($M)
Benchmark PaR (5%)
PaR (%)

a 54.85% decline over the year from $9.08 million for period ended 31
March 2018.

128. The trend in the profitability of the microfinance sector is indicated in the
figure below.

Figure 19: Microfinance industry- Trends in Profitability, 2014 - 2019


129. In view of the challenging operating environment, microfinance
institutions are urged to re-align their business models to bolster
profitability.

130. The microfinance sector remains operationally self-sustainable as reflected
by the operational self-sufficiency ratio of 142.29% for period ended 31
March 2019. Sustainability is a cornerstone of sound microfinance as
financially sustainable microfinance institutions become a permanent part of
the financial system which can continue to provide financial services to the
$24,840,000
$22,040,000
$19,310,000
$21,640,000
$9,070,000
$13,980,000
$9,980,000
$16,620,000
$4,980,000

$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000

Dec-I4
Dec-I5
Dec-16
Dec-17
Mar-18
Jun-18
Sep-18
Dec-18
Mar-19
Net Profit ($)
ROA
ROE

low income and marginalised groups on a sustainable basis, beyond grants
or soft loans.
FINANCIAL INCLUSION
NFIS Monitoring and Evaluation
131. Satisfactory progress has been made in the implementation of the National
Financial Inclusion Strategy (NFIS). The notable areas include product
diversification, innovation and human centred design of financial services
and delivery channels, financial literacy, consumer protection, opening of
low cost bank accounts, micro-insurance, MSMEs product offering, and
increased participation of lower income groups on the capital markets. The
above progress is reflected in the financial inclusion indicators in the table
below:
Table 11: Financial Inclusion Indicators - Dec 2016 - March 2019
Indicator
Dec 2017
March

June 2018
Sept 2018 Dec 2018
March 2019
Value
of
loans
to
MSMEs
$146.22 m
$123.10m $168.25m
$131.83m
$169.96m
$142.38m
% of loans to MSMEs
over total loans

Number of MSMEs
with bank accounts

Number of Women
with Bank Accounts
935,994
99,48


Value of Loans to
Women
$310.78m

$316.27m
$360.68m
$384.55m
$432.36m
$428.78m
Number of Loans to
Youth

Value of Loans to
Youth
$138.93 m
$111.70m
$126.64m
$146.79m
$104.43m
$282.18m
Total number of Bank
Accounts
3.07m
5.51m
5.58m
5.81m
5.94m
6.25m
Number of Low Cost
Accounts
3.02m
3.16m
3.56m
3.31m
3.88m
4.33m

Empowerment Facilities
132. Targeted beneficiaries of financial inclusion initiatives are continuing to
access the Revolving Empowerment as part of the implementation of the
National Financial Inclusion Strategy. As at 1 August 2019, cumulative
disbursements of $462.97 million had been made, representing 92.39% of
the total funds amounting to $501.1 million.

133. In addition, the MSMEs guarantee scheme being provided through the
Export Credit Guarantee Company (ECGC) is contributing to enhanced
MSME uptake of financial services. As at 31 March 2019, a total of nine (9)
banking institutions, four (4) Deposit Taking MFIs and 10 credit only MFIs
had accessed credit guarantees through ECGC amounting to $7.54 million.

Consumer Education
134. The Reserve Bank of Zimbabwe, in collaboration with various stakeholders,
continue to implement initiatives to enhance financial education and
consumer protection, including the following:
a) 2019 Global Money Week Celebrations were held from 25-29 March
2019 under the theme “Learn, Save, Earn”; and
b) Issuance of consumer education material by the Reserve Bank to
promote responsible access to financial services and expected positive
impact of financial inclusion on the lives of beneficiaries.

SUSTAINABLE FINANCING
135. Notable progress has been recorded in the area of sustainable financing.
Eight (8) institutions have confirmed their participation under the
Sustainability Standards and Certification Initiative (SSCI) being
implemented by the European Organisation for Sustainable Development
(EOSD) and have since paid their application fees.

136. The Reserve Bank of Zimbabwe held high level meetings with each of the
participating institutions and it is encouraging to note that quite a number of
institutions have already embraced green financing the following are some
of the interesting insights:

a) Some institutions are already working towards accessing the Green
Climate Fund are currently undergoing the accreditation process.
b) Some have started evaluating potential projects for funding and these
include renewable energy projects (e.g. solar projects for Universities and
schools). The projects are currently few and generally limited to mining
and energy segments.
c) Some institutions are incorporating greening concepts in their projects (e.g.
Building societies are considering installing solar power and water heating
systems at their projects).
d) Some have started the process of reviewing policies and procedures to
reflect the new thrust (e.g. reducing level of support to products that have
a negative effect on health to promoting other industries such as citrus and
macadamia nuts, considered to have high nutritional value) while a few
banks have embedded sustainability in their credit policies.
e) A few banks have introduced the use of data collection tools with key
environmental indictors.

f) A few institutions have adopted sustainability reporting in their Annual
Financial Statements. Sustainable financing is key to Integrated Reporting.

137. The institutions are now working on defining their High Impact Goals,
which should be linked to the country’s developmental aspirations and
should also subscribe to the Triple Bottom Line concept – People, Planet
and Profit.

138. The Reserve Bank of Zimbabwe and the European Organisation for
Sustainable Development (EOSD) have since signed a Memorandum of
Understanding, which provides a framework for effective cooperation and
coordination between the two (2) institutions in the implementation of the
Sustainability Standards and Certification Initiative (SSCI) for financial
institutions in Zimbabwe.

NATIONAL PAYMENT SYSTEMS OVERVIEW
139. The national payment services sector remained safe and sound. It recorded
significant improvements in key performance indicators, on the back of a
number of measures instituted by the Bank. These included oversight,
research, licensing and operational activities which continued to foster
convenience, development and safety of transacting to the members of the
public.

140. In terms of operational reliability, the payment system in country achieved
an average uptime of over 95% during the period under review. The Bank
continued to maintain a strong focus on ensuring the resilience of the
payment system infrastructure against cyber threats.

Oversight Activities
141. In order to ensure that appropriate risk management and consumer
protection measures are implemented, the Bank continued to conduct off and
on-site reviews on the payment services providers to ensure compliance.
Generally, the control measures implemented by these payment services
providers were found to be satisfactory. Improvement measures were
identified for some payment services providers to further strengthen their
risk management and operational arrangements.

142. Given the policy thrust to promote electronic means of payment and
cognizant of the vulnerabilities that come with it, a cocktail of risk
management measures was instituted to ensure effective consumer
protection, safety and system efficiency on an ongoing basis. The measures
instituted included the enforcement of best practices, cybersecurity,
customer security programs, Euro MasterCard and Visa (EMV) among
others.

Interoperability
143. While desirous of encouraging competition and innovation in payment
services which will benefit users and promote greater financial inclusion,
the Bank is mindful of the costs associated with a highly fragmented retail
payment market arising from non-interoperable systems. In this regard, the
regulatory framework in place require the ‘existing and new payment
systems operators to embrace infrastructure sharing and interoperability.

Paynet Zimbabwe
144. Following disagreement on demands for payment in foreign currency on
local services provided by Paynet Zimbabwe, banks were subsequently
suspended from the system. Notwithstanding the suspension, banks continue

using other payment services such as RTGS, internet, card (POS) and mobile
money payments to serve the transacting public. In addition, banks have also
devised mechanisms to allow for exchange of electronic payment files.

145. In line with continued innovation and to further enhance efficiency, banks
are working on a fully fledged bulk payments local solution which is
expected to go live end of July 2019.

Payment Systems Statistics
146. During the period January to May 2019, the electronic means of payment
transactional activities amounted to RTGS$ 87 billion, from 1(one) billion
transactions as shown in Table 12 below. Notably, financial transactions
made via the mobile channel continued to gain traction during the period
January to May 2019, leveraging on the high mobile phone penetration
among the Zimbabwean population.

Table 12: Payment Streams Transactional Activities from January to June

PAYMENT STREAMS
TOTAL FOR JAN-JUNE 2019
PROPORTION
OF TOTAL
VALUES
RTGS
50,113,186,253.19
57.68%
CHEQUE
18,153,190.14
0.02%
POS
7,011,707,119.88
8.07%
ATMS
78,201,111.49
0.09%
MOBILE
22,925,869,324.11
26.39%
INTERNET
6,728,741,109.57
7.75%
TOTAL VALUE
86,875,858,108.37
100.00%
VOLUMES
RTGS
2,561,563
0.25%
CHEQUE
72,281
0.01%
POS
146,477,651
14.10%

ATMs
998,482
0.10%
MOBILE
886,272,588
85.33%
INTERNET
2,256,967
0.22%
TOTAL VOLUME
1,038,639,532
100.00%
Source: RBZ, 2019

147. The aggregate monthly value of digital payment transactions increased by
an average of 18% to during the first five months of 2019, whilst the
corresponding volumes exponentially increased by a monthly average of
23%.


Reserve Bank of Zimbabwe
13 September 2019