Financial Stability Report
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Contents

MONEY LAUNDERING AND FINANCIAL CRIME RELATED ACTIVITIES: RISKS TO
5.

Table of Figures

List of Tables

Purpose of the Report

The Report provides an overall assessment of financial stability in 2022, considering
potential risks to financial stability and mitigants thereof. 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 produced in fulfilment of the mandate of 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
incorporates significant developments that have an impact on financial stability at the
time of finalisation of the report.

Governor’s Foreword
The Zimbabwean financial sector continued to depict resilience in 2022 and is expected to
continue to support the real sector in 2023 and beyond. The country registered significant
progress in its efforts to adapt and minimise the impact of the global supply chain
disruptions arising from the Russia-Ukraine geopolitical tension and related developments.
As a result of these efforts, the country has achieved notable growth in a number of sectors
including agriculture and mining.
The domestic economy is estimated to have grown by 4.0% in 2022 and is expected to
grow by 3.8% in 2023, largely premised on the anticipated increase in mining output
supported by the favourable international commodity prices. Further, the prevailing stable
economic conditions are expected to enhance activity in the manufacturing, wholesale, and
retail trade sectors. The liberalisation of the foreign exchange market as well as the
stabilisation of the exchange rate are expected to provide an enabling environment in 2023
for the financial sector to thrive.
In 2022, the domestic banking sector remained well capitalised, profitable, supported by
high liquidity buffers and hence, able to withstand shocks from the operating environment.
Asset quality also remained satisfactory. Stress test results showed that the banking sector
was resilient to shocks arising from credit, market, and liquidity risks.
The national payments infrastructure remained stable and resilient during the period under
review and is projected to maintain the same momentum into the future. The Bank will
continue with efforts to enhance efficiency, safety, and resilience in the payment systems
to keep pace with international developments, while keeping in view the growing challenges
posed by technological innovation.
The Deposit Protection Corporation of Zimbabwe has continued to provide a critical financial
stability safety net through deposit protection. The deposit insurance coverage level was in

line with the Public Policy Objectives1 of ensuring that at least 90% of the depositors are
fully covered.
The capital market sector also demonstrated resilience during the year under review,
reflected by a significant increase in market capitalisation on the Zimbabwe Stock Exchange
in 2022 compared to 2021.
The insurance and pensions sector was stable in 2022. The finalisation of the modalities to
compensate pensioners for losses incurred due to the 2009 currency reforms, is expected
to reinforce the sector’s reputation and public confidence.
Financial sector regulatory authorities continue to develop proactive policies and regulations
to foster financial stability. The Macroprudential Policy and the Contingency Planning and
Crisis Management Framework are earmarked for operationalisation in 2023.
The Reserve Bank issued the Liquidity Coverage Ratio Guideline aimed at strengthening the
banking sector resilience to short term liquidity shocks.
The Reserve Bank is also in the process of reviewing the Risk Based Cyber Security Guideline
which was issued in 2021. The enhanced Guideline will provide guidance on effective and
efficient management of cyber risk in the banking and payment systems sectors. The
Securities and Exchanges Commission of Zimbabwe is implementing structures to ensure
the prevention, timely detection, response, and recovery of the Commission and the capital
market players from cyber-attacks.
Continuous efforts are underway to strengthen supervisory capacity in areas including AMLCFT-PF and cyber risk supervision. Guidance to the banking sector on sound practices for
climate risk management was issued to the market.
In line with developments at other Central Banks who are exploring the use of Central Bank
Digital Currencies (CBDCs), the Bank initiated the CBDC Project to explore the benefits and
potential risks of implementing CBDC.

1 The Public Policy Objectives are contained in the Deposit Protection Corporation of Zimbabwe’s BOARD PAPER NO.
3.2/2002.

The failure of three banks in the United States in March 2023, once again highlighted the
potential risks to financial stability emanating from crypto assets. The importance of proper
regulation of all financial products and activities cannot, therefore, be over-emphasised,
particularly on the backdrop of increasing digitalisation and fintech proliferation.
In conclusion, I would like to thank the Ministry of Finance and Economic Development,
financial sector regulators and key stakeholders for their collaborative efforts in ensuring
that Zimbabwe’s financial sector remains stable and is able to perform its key functions in
support of sustainable economic growth and development.

Dr J P Mangudya
Governor

1.
ECONOMIC DEVELOPMENTS

Global Economic Developments
1.1 The global economy continued to face a broad-based and sharper-than-expected
economic slowdown because of supply chain disruptions arising from Russia-Ukraine
conflict and associated global inflationary pressures. Global inflation recorded a 40-year
high in most economies, rising to 4.7% in 2021, and 8.8% in 2022. In its January 2023
World Economic Outlook update, the International Monetary Fund (IMF) noted that global
inflation is set to decline from 8.8% in 2022 to 6.6% in 2023 and to 4.1% by 2024, while
global Gross Domestic Product (GDP) growth is projected to slow down to 2.9%, in 2023
compared to 3.4% in 2022. Figure 1 shows the trend in global economic growth from
2020 to 2024.
Figure 1: Global Economic Growth Graph

Source: Global Economic Prospects Report (World Bank Group) – January 2023

1.2 The disruptions in the global economy resulting from the Russia-Ukraine geopolitical crisis
have continued to weigh heavily on the outlook. The projected economic slowdown in
2023 has potential negative impact on asset quality in the banking system and demand
for other financial services such as insurance and investment on the stock market.
-10
-5

2023(f)
2024(f)
Global
Advanced
EMDEs
Sub-Saharan

1.3 With regards to climate risk, there have been heightened global efforts to mitigate the
risk. Efforts are being made in the financial sector to formulate strategies to comply with
net-zero carbon emission and these will have an impact on financial institutions’ business
models.
1.4 In emerging market and developing economies (EMDEs) the economic outlook is
expected to vary among markets. In China, after weak growth recorded in 2022, the
country’s reopening and end of zero-COVID policy in December 2022 is projected to
release pent-up demand and boost consumption and growth. Weakening external
demand and challenges in the Chinese property market in the form of buyers' inability to
make mortgage repayments, failure to deliver pre-sold homes and default on debt by
property developers, which indicates a lack of consumption power and confidence, are
major drags on China’s economic recovery in 2023.
1.5 According to the World Bank’s Global Economic Prospects (2023), the Sub-Saharan
Africa region is expected to register economic growth of 3.6% in 2023, higher than the
estimated 3.4% in 2022. The slightly higher growth in 2023 is partly attributable to the
expected increase in oil and gas exports from the region, an expected slight ease in the
cost of living following reduction in prices of key imports such as fertilizers and expected
increase in domestic demand. The region, however, continues to face key risks such as
imported inflation driven by elevated global inflationary pressures, some degree of global
and domestic monetary tightening that will be needed to anchor inflation, tight food
markets due to limited imports, coupled with erratic weather conditions, and increased
credit risks amplified by high debt-levels and debt servicing costs, which are expected to
hinder capital flows to the region.

Domestic Economic Developments
1.6 The domestic economy is estimated to have grown by 4.0% in 2022, mainly spurred by
growth in the mining and quarrying industries, wholesale and retail commerce, lodging
and food services, and building services, among other sectors. The increase in output in
these sectors in 2022 more than offset the drought-induced output decline in the
agriculture sector in 2022.

1.7 Due to the uncertain global economic outlook associated with rising global inflation and
supply chain disruptions, economic growth is projected to be 3.8% in 2023. The recovery
of the agriculture sector is also expected to contribute significantly to growth in 2023.
Additionally, ongoing macroeconomic stabilisation measures are expected to provide
conducive conditions for enhanced activity in the manufacturing, wholesale, and retail
trade sectors.
1.8 Downside risks to the projected growth for 2023 emanate from the yet to be resolved
Russia-Ukraine conflict on account of its impact on food and energy prices. The low and
erratic supply of electricity experienced in the economy since December 2022 also poses
significant downside risks to economic activity. The current efforts to stabilise and
increase the availability of electricity are expected to ease the power supply challenge.
Exchange Rate Developments
1.9 The further liberalization of the foreign exchange market through the introduction of the
willing-buyer willing-seller (WBWS) interbank market for foreign exchange has gone a
long way to assist in price discovery of the equilibrium exchange rate and to augment
the foreign exchange auction system. The trend of the official exchange rate from 2019
to 2022 is depicted in Figure 2 below.
Figure 2: Exchange Rate Developments (ZW$/US$)

Source: RBZ website


Feb-19
Apr-19
Jun-19
Aug-19
Oct-19
Dec-19
Feb-20
Apr-20
Jun-20
Aug-20
Oct-20
Dec-20
Feb-21
Apr-21
Jun-21
Aug-21
Oct-21
Dec-21
Feb-22
Apr-22
Jun-22
Aug-22
Oct-22
Dec-22

Inflation Risk
1.10 Annual inflation was on a downward path throughout the year 2022. Annual headline and
month-on-month inflation closed the year at 243.80% and 2.4% respectively, supported
by fiscal consolidation and the implementation of monetary targeting framework by the
Reserve Bank.
1.11 Zimbabwe has adopted the concept of blended inflation taking into consideration that
the ZW$ inflation is no longer a true representation of the cost of living in the country as
70% of domestic expenditure is now denominated in US dollars. Blended inflation
provides a more accurate reflection of the cost of living in the country. Figure 3 below
shows the trend in annual inflation from 2018 to 2022.
Figure 3: Annual Inflation (%)

Source: ZIMSTAT (2022)

Monetary Developments
1.12 Reserve money stock stood at ZW$104.04 billion as at 31 December 2022, compared to
ZW$33.55 billion recorded as of 30 June 2022. The increase was partly attributed to the
levying of statutory reserves on foreign currency deposits, with effect from 1 September
2022. The local currency equivalent of the foreign currency denominated statutory
reserves has been increasing with changes in the exchange rate, thus explaining the


significant build-up in reserve money, which was witnessed in the last quarter of 2022.
As a result, statutory reserves, both in local and foreign currency, now constitute over
90% of total reserve money, as shown in Figure 4 below.
Figure 4: Components of Reserve money as at the end December 2022

Source: Monetary Policy Statement January 2023

1.13 Foreign currency deposits accounted for the largest share of broad money, at 56.78%;
followed by local currency demand deposits, 32.45%; time deposits, 9.98%; negotiable
certificates of deposits, 0.61%; and currency in circulation, 0.18%.
1.14 Figure 5 shows monetary developments for the period December 2021 to December
2022.


Currency Issued
7.28%
ZW$ Statutory
Reserves
49.10%
FCA Statutory
Reserves
43.53%
Excess Reserves
0.10%

Figure 5: Monetary Developments

Source: RBZ (2022)


Interest Rates Developments

1.15 The Reserve Bank’s response to heightened inflationary pressures has led to a rapid and
material tightening in monetary conditions in the economy. The policy rate was increased
from 60% at the beginning of the year to close the year 2022 at 200%.

1.16 There were material increases in interest rates on fixed term deposits offered by banks.
The 90-day deposit rates firmed, from 15.05% in December 2021 to close the year 2022
at 60.08%. Concurrently, the maximum lending rates quoted by banks also increased,
from 85% per annum in December 2021 to close 2022 at 230% per annum. Resultantly,
the spread between the maximum 90-day deposit rate and the maximum lending rates
increased from 45.03 percentage points to 145 percentage points. Figure 6 below shows
the trend in interest rates from December 2021 to December 2022.


ZW$ Billion
Foreign Currency Deposits
Local Currency Transferable Deposits
Time Deposits
NCDs
Currency in Circulation
Annual Growth

Figure 6: Interest Rate Developments (%)


1.17 In line with the tight monetary conditions, the weighted average 365-Treasury bill rate
increased from 21% per annum as at end of December 2021 to about 92% in December
2022.

Max 90-Day Deposit Rates
Max Lending Rates
Policy Rate

2. FINANCIAL STABILITY ASSESSMENT BY SEGMENT

2.1 BANKING SECTOR SOUNDNESS AND RESILIENCE

2.1.1. The banking sector remained stable in 2022 supported by the high capital and liquidity
buffers. The level of risks in the banking sector declined in 2022 as shown in the figure
below, on the back of macroeconomic stabilisation measures implemented by the
monetary and fiscal authorities. In addition, banking institutions maintained sufficient
capital and liquidity buffers which improved their overall soundness and resilience. The
Banking Sector Soundness Index is a composite measure of banking system soundness
depicting an overall picture of the state of the banking system (See Annex 1 for
derivation of Index). An increase in the index reflects increases in risks to the banking
sector whilst a decline shows a reduction in the risks. Developments in various risk
components are presented in detail below.
Figure 7: Banking Sector Soundness Index


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
Mar-22
Jun-22
Sep-22
Dec-22

Banking Sector Solvency
2.1.2. The banking system’s solvency remained strong as reflected by growing capital ratios.
The banking sector’s average capital adequacy ratio maintained an upward trend rising
from 32.98% in December 2021 to 37.51% in December 2022, reflecting
strengthening loss absorbance capacity. Average capital adequacy ratio for the
Domestic Systemically Important Banks’ (DSIBs) rose from 22.88% in 2021 to 28.64%
in 2022. The trend in average capitalisation is presented in the figure below.
Figure 8 :Banking Sector Capital Adequacy Ratio Trend


2.1.3. The high capital buffers in the banking sector foster financial stability and the regular
functioning of the intermediation system.
2.1.4. All banking institutions recorded profits for the year ended 31 December 2022, with
total banking sector net income rising to ZW$503.13 billion from ZW$ 61.28 billion in
2021. The growth in banking sector income was largely underpinned by non-interest
income, driven mainly by foreign currency translation gains.


Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
(%)
CAR
Min CAR

Banking Sector Concentration
2.1.5. The Zimbabwean banking sector has generally exhibited low levels of concentration
as shown by the Herfindahl-Hirschman indices in the figure below (See box 1 for the
Herfindahl-Hirschman index calculations).
Figure 9: Herfindahl-Hirschman Index


2.1.6. The level of concentration in the banking sector has largely remained unchanged since
2020. Combined assets for the five Domestic Systemically Important Banks (DSIBs)
accounted for 65.40% of total banking sector assets as at 31 December 2022.
2.1.7. The relatively low concentration in the banking sector promotes competitive pricing
and healthy trading among market players which fosters financial stability.

1,106
1,115
1,094
Dec-17
Dec-18
Dec-19
Dec-20
Dec-21
Dec-22
HH Index

Banking Sector Risks
Credit Risk
2.1.8. Supply chain uncertainties on the back of geo-political tensions in Eastern Europe,
coupled with domestic inflationary pressures, albeit receding, and high lending rates
continued to elevate inherent credit risk. The banking sector, however, maintained
sound risk management systems as reflected by the low non-performing loan ratio of
1.58% as at December 2022, resulting in a moderate composite credit risk rating.
2.1.9. The bulk of the banking sector loans were in the pass category (64.17%) with only
0.15% of loans in the loss category as at 31 December 2022 (See Figure 10 below).


The Herfindahl-Hirschman Index is an index that measures 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 1: THE HERFINDAHL-HIRSCHMAN INDEX

Figure 10: Distribution of Total Banking Sector Loans as at 31 December 2022


2.1.10. On a sectoral basis, the agricultural sector contributed the highest proportion of nonperforming loans at 27%. This was largely due to a mid-season dry spell that affected
most food crops.
2.1.11. The agricultural sector is projected to register a positive growth of 4% for 2023 based
on the normal to above normal rainfall forecast, climate proofing measures under the
National Accelerated Irrigation Rehabilitation Programme, as well as the restructuring
and transformation of agriculture systems to improve the viability and productivity of
the sector. These developments are expected to improve the debt servicing capacity
of the sector and reduce the level of non-performing loans.
2.1.12. The credit risk stress tests conducted by the Bank showed that the banking sector was
resilient to a major credit risk shock of 40% migration of performing loans to nonperforming loans as the sector average CAR would remain above 12%.
Liquidity Risk
2.1.13. Banking sector liquidity risk remained low due to high liquidity buffers sufficient to
absorb existing and emerging liquidity risks. The prudential liquidity ratio remained
high at 59.50% in December 2022 partly explained by a cautious approach to lending
Pass , 64.17%
Special Mention, 34.41%
Substandard , 0.80%
Doubtful , 0.47%
Loss , 0.15%

that has been adopted by banking institutions. The trend in the liquidity ratio from 31
December 2018 to 31 December 2022 is shown in the figure below.

Figure 11 : Prudential Liquidity Ratio Trend

Source: RBZ (2022)
2.1.14. Liquidity stress tests confirmed the banking sector’s resilience to potential short-term
liquidity shocks.
2.1.15. In 2022, the Reserve Bank issued Prudential Standard No: 02-2022/BSD:
Guidance on the Implementation of the Liquidity Coverage Ratio to
strengthen short-term resilience of banking institutions to liquidity shocks. The
Standard requires banking institutions to have an adequate stock of unencumbered
high-quality liquid assets (HQLA) that can be converted easily or immediately into cash
to meet liquidity needs in stress scenarios.
Market Risk
2.1.16. Market risk remained moderate underpinned by a relatively high interest rate
environment aimed at curbing inflationary pressures arising from speculative
tendencies in the foreign exchange market.


Dec-2018
Jun-2019
Dec-2019
Jun-2020
Dec-2020
Jun-2021
Dec-2021
Jun-2022
Dec-2022
%

2.1.17. As at 31 December 2022, the banking sector had an overall liability sensitivity book,
reflected by a cumulative re-pricing gap of -ZW$235.87 billion in the 1-90 days',
implying vulnerability to increases in interest rates.
2.1.18. Notwithstanding the liability sensitive book, the banking sector was resilient to a shock
of a thirty-percentage point parallel increase in interest rates. Limited investment
opportunities in the money market tend to minimise the banking sector’s exposure to
interest rate risk, which is mainly in the banking book. In addition, banks’ sources of
funds are predominantly retail deposits which are relatively less interest rate sensitive,
while re-pricing assets are mainly loans and advances and Treasury Bills. Further,
prevailing high interest rate spreads cushion banking institutions’ balance sheets from
capital erosion.
2.1.19. The measures implemented to counter speculative tendencies in the foreign exchange
market, including the introduction of gold coins as a store of value and the high interest
rate regime, are expected to foster financial stability through stabilisation of the
exchange rate. Stress test results as at 31 December 2022 revealed resilience of the
banking sector to deprecation in the local currency.
Strategic Risk
2.1.20. Strategic risk is expected to remain moderate. The dynamic operating landscape
exposes banks to amplified strategic and business model risks. The increasing use of
new technologies in the provision of financial services and competition from new
players, such as big tech firms also precipitate moderate level of strategic risk.
2.1.21. In this regard, banking institutions continue to reconfigure their business models and
enhance their internal capabilities to align with developments in the operating
environment.
Operational Risk
2.1.22. The increasing use of technology in the financial services sector has heightened cyber
risk and other operational risks. Banking institutions continue to enhance operational
and cyber risk management capabilities.

2.1.23. This is mainly in the form of continuous review and update of their Business Continuity
Plans and Disaster Recovery Plans (DRPs). The reviews are aimed at providing greater
assurance of their ability to maintain critical operations and increase the speed with
which business operations are restored in the event of disruptions, such as pandemics,
natural disasters, cyber-attacks or technology failures. These enhanced BCPs and
DRPs reinforce banking institutions’ operational resilience, capacity to anticipate,
prepare for, and adapt to future shocks.
2.1.24. As at 31 December 2022, the Reserve Bank was in the process of reviewing the
National Payment Systems Risk Based Cyber Security Guideline (2021) supported by
the IMF technical team. The Bank is also implementing cyber risk supervision training
programs for staff as part of ongoing capacity building initiatives. In addition, the Bank
conducted a cyber maturity assessment during the year under review.
2.1.25. Table 1 below presents the banking sector’s major risks and assessment of the
adequacy of risk management systems across the market as at 31 December 2022.

Table 1: Banking Sector Risk Matrix as at 31 December 2022
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

Interbank Network Analysis
2.1.26. The level of interconnectedness in the banking sector increased in 2022 compared to
2021 due to the increase in interbank participants. As at 31 December 2022, the
interbank network showed that 18 financial institutions, which include banks,
development financial institutions and Deposit Taking Microfinance Institutions
(DTMFIs) were participating in the interbank market compared to 16 at the end of
2021.
2.1.27. 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. The
thickness of the edges reflects the relative size of the exposure compared to the other
exposures in the interbank market. The network showed two significant borrowers
(Bank 1 and 8) in 2022 compared to only one significant borrower in 2021.

Figure 12: Interbank Network as at 31 December 2022

2.2
MICROFINANCE SECTOR

2.2.1. During the year under review, the microfinance industry recorded an increase in the
number of registered microfinance institutions, from 178 as 31 December 2021 to 206
as at 31 December 2022. The industry registered a marginal deterioration in the quality
of the loan portfolio over the year as reflected by an increase in PaR(>30 days) ratio
to 10.95% as at 31 December 2022 from 9.85% as at 31 December 2021, against the
international benchmark of 5%. The sector’s operational self-sufficiency (OSS) ratio
also declined from 210.18% in December 2021 to 167.95% as at 31 December 2022,
but was still above the 100% threshold, reflecting the microfinance industry’s positive
overall sustainability and viability.
2.2.2. The increasing adoption of digital financial services has enabled microfinance
institutions to streamline their operations and reduce operational costs. The major
risks to the microfinance industry’s performance were strategic and operational risks.
Strategic Risk
2.2.3. The persistent dynamic and volatile operating landscape in 2022 exposed microfinance
institutions to intensified strategic and business model risks requiring ongoing
alignment.

Operational Risk
2.2.4. Post the Covid-19 pandemic, the microfinance sector has continued to adopt new
technologies including digital payment platforms which have inherently heightened the
sector’s exposure to operational risks and proliferation of new risks such as cyber risk.
Ongoing capacity enhancement initiatives in the industry are critical for the
performance and sustainability of the microfinance sector.
2.3
SUSTAINABILITY STANDARDS AND CLIMATE RISK

2.3.1
Sustainability is increasingly becoming a strategic priority in the global financial
landscape in which traditional business models are being challenged by megatrends
such as climate change, technology and customer preferences requiring financial

institutions to play a key role in the transition to a climate-neutral, green, inclusive and
competitive economy. In this connection, global efforts towards adoption of
appropriate environmental, sustainability and governance frameworks, as well as
climate risk mitigation and adaptation, have accelerated.
2.3.2
By prioritizing sustainability, banking institutions also help to reduce the risks of
environmental and social disruptions which in turn, promotes long-term financial
stability, which benefits both the institutions and the wider economy.
2.3.3
The Reserve Bank continues to work closely with financial institutions in the adoption
and implementation of sustainability standards, as well as climate risk management.
The Bank issued a Climate Risk Management Guideline to the banking sector in March
2023. The main objective of the Guideline is to enhance regulated institutions’
resilience through promoting sound climate risk management practices, which are in
line with best practice.
2.3.4
The Bank is also actively involved in national climate risk mitigation and adaptation
initiatives, and is also working with other stakeholders, including the Public
Accountants and Auditors Board, towards the adoption of Sustainability Disclosure
Standards issued by the International Sustainability Standards Board.

2.4
DEPOSIT INSURANCE
2.4.1
Depositor confidence in the financial system is critical for the proper functioning of the
financial system and financial stability. Deposit insurance is an important safety net
element which plays a critical role in promoting depositor confidence in the financial
system, and therefore financial stability.
2.4.2
The Deposit Protection Corporation (DPC) has continued to implement initiatives to
strengthen its capacity to deliver its statutory mandate.
2.4.3
As at 31 December 2022, membership to the DPC Scheme comprised of 27
contributory institutions as shown in Table 2 below:

Table 2: Membership to the DPC Scheme as at 31 December 2022
Type of Institution
Number
Commercial Banks

Building Societies

Merchant Banks

Savings Bank

Infrastructure & Development Bank

Deposit-Taking Microfinance Institutions (DTMFIs)

Total

Cover Level - Banking Institutions
2.4.4
As at 31 December 2022, 97.4% of the depositor accounts in contributory banking
institutions were fully covered at a cover level of ZW$120 000 per deposit class per
bank. This is in line with the Public Policy Objectives of ensuring that at least 90% of
the depositors are fully covered.
2.4.5
At the cover level of US$1 000 per deposit class per bank for foreign currency deposits,
96.3% of the depositors were fully covered.
2.4.6
The deposit protection coverage for local currency and foreign currency accounts in
the banking institutions is shown in Tables 3 and 4 below.
Table 3: Deposit Protection Coverage for Banking Institutions (ZW$)
Item
December 2021
December 2022
% @31/12/22
Total Number of Deposit Accounts
5,871,908
6,855,748
100%
Total Number of Deposit Accounts Fully Covered.
5,419,591
6,678,505
97.4%
Total Number of Deposit Accounts Partially Covered.
452,317
177,243
2.6%
Value of Deposits in Fully Covered Accounts
ZW$2.9 billion
ZW$21.7 billion
3.2%
Value of Deposits in Partially Covered Accounts.
ZW$225.2 billion
ZW$647.2billion
96.8%
Total Value of Insured Deposits
ZW$7.4 billion
ZW$42.9 billion
6.4%
Total value of deposits
ZW$228.1 billion
ZW$668.9 billion
100%

Table 4: Deposit Protection Coverage for Banking Institutions (US$)
Item
December 2021
December 2022
% @31/12/22
Total Number of Deposit Accounts
920,708
1,380,059
100%
Total Number of Deposit Accounts Fully Covered.
886,153
1,328,733
96.3%
Total Number of Deposit Accounts Partially Covered.
34,555
51,326
3.7%
Value of Deposits in Fully Covered Accounts
USD38.6 million
USD67.2 million
4.3%
Value of Deposits in Partially Covered Accounts.
USD1.5 billion
USD1.5 billion
95.7%
Total Value of Insured Deposits
USD72.5 million
USD118.5 million
7.4%
Total value of deposits
USD1.6 billion
USD1.6 billion
100%
Cover Level - Deposit Taking Microfinance Institutions
2.4.7
At the maximum deposit protection cover level of US$500 per deposit class per bank,
98.3% of the foreign currency deposit accounts in the deposit-taking microfinance

institutions sector were covered in full. At the cover level of ZW$5,000 per deposit
class per bank, 97.8% of the deposit-taking microfinance institutions depositors were
fully covered as shown in Table 5 and Table 6.
Table 5: Deposit Protection Cover for DTMFIs as at 31 December 2022(ZW$)
Item
December 2021
December 2022
% @ 31/12/22
Total Number of Deposit Accounts
201,828
279,293
100%
Total Number of Deposit Accounts Fully Covered.
184,253
273,259
97.8%
Total Number of Deposit Accounts Partially Covered.
17,575
6,034
2.2%
Value of Deposits in Fully Covered Accounts
ZW$5.8 million
ZW$36.5 million
2.1%
Value of Deposits in Partially Covered Accounts.
ZW$505.7 million
ZW$1.6635 billion
97.9%
Total Value of Insured Deposits
ZW$14.6 million
ZW$66.7 million
3.9%
Total Value of Deposits
ZW$511.5 million
ZW$1.7 billion
100%

Table 6: Deposit Protection Cover for DTMFIs as at 31 December 2022 (USD)
Item
December 2021
December 2022
% @ 31/12/22
Total Number of Deposit Accounts
1,276
7,980
100%
Total Number of Deposit Accounts Fully Covered.
1,178
7,847
98.3%
Total Number of Deposit Accounts Partially Covered.

1.7%
Value of Deposits in Fully Covered Accounts
USD25 825
USD102 858
1.5%
Value of Deposits in Partially Covered Accounts.
USD3.9 million
USD6.6 million
98.5%
Total Value of Insured Deposits
USD74, 825
USD169,358
2.5%
Total value of deposits
USD3.9 million
USD6.7 million
100%

Risks to the Deposit Protection Corporation Fund
2.4.8
The DPC Fund is exposed to two main risks in the execution of its mandate of
protecting depositors as outlined in Table 7 below.
Table 7: DPC Risks and Mitigation
Type of Risk
Inherent Risk
Impact
Risk Mitigants
Residual
Risk
Trend
of Risk
Investment Risk

• This is the risk of loss
arising from investments
made by DPC.
• Main source of income
i.e. premiums, is
currently invested on the
stock and money
markets.


High
• Concentration risk
(The bulk of the
investments are in
equities).
• Inflationary
pressures.
• Low returns versus
inflation rate.


• Low returns than
inflation rate on
the money
market affects
growth of the
Fund in real
terms.
• Depreciation of
ZW$ diminishes
value of Fund.

• Investment policy in
specific asset classes to
preserve value.
• Diversification of
investment portfolio into
a. properties and
b. special instruments
including prescribed
bonds & Government
Bonds, Gold Coins.
• Option for offshore
investments at VFEX.
High
Stable
Fund Adequacy Risk

• This is the risk to the
Corporation’s fulfilment of
its mandate of protecting
High
• DPC Fund of
ZW$2b against an
exposure of
ZW$5.5b to CBIs

• Insufficient DPC
Fund impacts
negatively on the
operational

• A gradual increase in
FCA premium rate to
match the ZW$ being
0.20% from 31.12.2022
High
Stable

KEY
Green
- Level of risk is considered low
Amber- Level of risk is considered moderate
Red
- Level of risk is considered high
Trend
Green
- Level of risk is expected to decrease in the next 12 Months
Amber - Level of Risk is expected to remain stable in the next 12 Months
Red
- Level of risk is expected to increase in the next 12 months.


2.5 NATIONAL PAYMENT SYSTEMS

2.5.1
The country’s national payment systems remained stable and resilient during the
period under review. The Real Time Gross Settlement System’s uptime was at 99.54
percent which is in line with the best practice threshold of 99% while the combined
national payment systems were at 98.5% uptime, ensuring minimal disruption to
business operations, supporting economic activity, and maintaining confidence in the
financial system.
2.5.2
Digital payment systems transaction values continued on an upward trajectory with a
220% growth to ZW$33.2 trillion in 2022 from ZW$10.38 trillion in 2021 indicating the
system’s capability to handle the large transaction values. The volume of transactions,
on the other hand, recorded a decrease of 22% to 1.13 billion in 2022 from 0.93
billion.
2.5.3
The country signed up to the Pan African Payment and Settlement System (PAPSS)
agreement with Afreximbank. PAPSS is an interoperable payment system for crossborder transactions enabling the integration of Africa’s financial markets to stimulate,
Type of Risk
Inherent Risk
Impact
Risk Mitigants
Residual
Risk
Trend
of Risk
depositors that is caused
by an insufficient DPC
Fund.
• The DPC Target Fund is
currently equal to 2% of
the total deposits in the
banking sector.
on watch list.
• Fund to Target
Fund Ratio was
11.5%.
readiness of the
Corporation to
compensate
depositors in the
event of a bank
failure.
• A very low fund
size reduces
confidence in
protection
scheme.
and 0.30% from
31.12.2023.; and (b)
growing non-premium
income.
• Implement actuarially
determined premium
rate of 0.4%.
• Lobbying for capital
injection from
Government.

hasten and sustain the pace of regional integration, economic growth and
development and financial inclusiveness in the continent. A reliable and efficient
payment and settlement system facilitates transactions by businesses and individuals
with minimal risk, thereby fostering financial stability and economic growth and
development.

Payment Systems Architecture
2.5.4
The payment systems comprising twelve (12) payment system providers and twentyfive (25) participant banks as well as three regional payment platforms facilitated the
transactional activities in the economy.
2.5.5
Figure 13 below is showing the payment systems architecture.
Figure 13 : FMIs and Number of Participant Banks as at 31 December 2022


Payment, Clearing and Settlement Systems Transactions
2.5.6
The growth of digital payment systems transaction values in 2022 by 220% to
ZW$33.2 trillion is a reflection of the robustness of the system. The shift from reliance
on the traditional cash-based transactions to digital payment systems not only
improves transparency but accountability in financial transactions. The volume of
transactions, on the other hand, recorded a decrease of 22% to 1.13 billion during

No. of Participants

2022. The trend in annual digital payment systems annual values and volumes from
2015 to 2022 is presented in Figure 14.
Figure 14: Digital Payment Systems Annual Values and Volumes for 2015 to 2022


Real Time Gross Settlement (RTGS)
2.5.7
The significant increase in RTGS transaction values by 355% to ZW$22.5 trillion in
2022 from ZW$4.9 trillion in 2021 indicates an increasing preference for electronic
modes of payment, which can reduce the circulation of physical cash and promote
transparency in financial transactions. Similarly, the marginal increase in transaction
volumes by 3.4% to 12.9 million in 2022 compared to the previous year indicates a
shift towards secure and reliable payment systems, which can mitigate fraud risks and
promote financial stability. The improved performance of ZETSS can contribute to a
stable financial environment, enhancing consumer confidence and investor trust in the
financial sector (See Figure 15 below).


VOLUMES IN BILLIONS
Values in Tillions
Values LHS
Volumes RHS

Figure 15: RTGS Annual Values and Volumes 2015 to 2022


2.5.8
The RTGS system logged an average uptime of 99.54% during the period under
review. The uninterrupted and smooth flow of the system which transmits high value
transactions, has brought about confidence in the market and therefore increasing the
stability of payment systems and financial stability.
2.5.9
The RTGS System was upgraded at the end of 2021 to offer a more robust platform
that supports diversification of transactional reports with improved business and
technical capabilities. Notably, the benefits which include effective liquidity
management and stability of the system were realised in 2022 and beyond while
continuous upgrades will also be implemented to align with global trends.

Retail Payment Systems
2.5.10 During the period under review, the performance of the digital retail payment systems
were largely marked by upward trends as measured by volumes and values.
2.5.11 The Bank endeavours to bring more efficiency, safety, and resilience in the payment
systems to keep pace with international developments, while keeping in view the
growing challenges posed by technological innovation.


Volumes in Millions
Values in Trillions
Values LHS
Volumes RHS

2.6
CAPITAL MARKETS PERFORMANCE

2.6.1 The capital markets sector remained resilient during the year ended 31 December 2022.
The resilience was underpinned by a rebound towards the end of the year which has
witnessed a significant increase in investor participation and market turnover resulting
in a positive impact on the institutions’ financial soundness indicators.
Risks to the Capital Markets
2.6.2 The capital markets face strategic, operational, reputational, counterparty, legislative,
market structure, and technology risks. The table below shows the identified risks that
threaten the sector’s stability as well as their mitigants.

Table 8: Key Risks and Impact - December 2022

Description
Inherent
Risk Level
Risk Mitigation Measures
Residual Risk
Direction
Cyber Risk
• Intended
or
unintended
negative
consequences of technological advances
on individuals, businesses, ecosystems
and/or economies
• Growing reliance on third party IT
service
providers
and
increased
centralization
of
IT
infrastructure
globally.
• Increased risks of disruptive attacks on
major
global
financial
market
infrastructures.


• SECZ works directly and indirectly
through Investor Education in raising
awareness
on
cyber
threats
and
encourages
licensed
entities
and
investors to do proper due diligence
before joining pyramid schemes on
social media and other initiatives.
• Enhanced
structures
to
ensure
prevention, timely detection, response,
and recovery by SECZ and the financial
sector players.
• Promulgation and implementation of the
Data Protection Act.
• Businesses and individuals’ cybersecurity
infrastructure
and/or
measures
are
outstripped or rendered obsolete by
increasingly sophisticated and frequent
cybercrimes,
resulting
in
economic
disruption, financial loss, geopolitical
tensions and/or social instability.
• Exposure to global market infrastructure
at risk of attack introduces risk into the
domestic financial system, with limited
mitigation possibilities.
• Growing dependency on information
technology (IT) for transactions and
communication.

Increasi
ng
Funding Risk
• Weak economic growth affects the
operating environment and long-term
prospects
of
financial
institutions
through various channels.
• Inequitable liquidity decrease raises
the risk of low trading activity on
capital markets which in turn may
negatively
impact
on
investor
confidence and operational costs

• SECZ continues to collaborate with other
regulators to advise the government
through parent ministry to create an
environment where markets can thrive
and avoid disruptions.
• Comprehensive supervisory oversight of
the operating and business standards
and increasing profitability of the sector
• Significant drop correction in asset prices
would affect the profitability and going
concern of the SMIs.
• High dependance on pension funds and
asset management companies are the
main source of deposits.


Stable
Operational
Risk
• The existing power challenges to
maintain dependence on the IT
services.
• Exacerbating pre-existing economic
and
financial
vulnerabilities
in
Zimbabwe
which
have
increased
human
capital
drain
to
greener
pastures.


• SECZ continue to implore and enforce a
tech-driven
market
by
ensuring
automation of activities and the market
which will allow firms to work efficiently.
• Inclusion of graduate training within
teams to improve the job knowledge in
the sector
• Low salaries due to depressed trading
activity which then increase staff turnover.
• The brain drain challenge remain a
national issue due to limited opportunities.
• Higher stages of load shedding could
affect financial market infrastructures.
• Increased operational cost of financial
institutions
Increase
Contagion
Risk
• The banking sector is highly integrated
with non-banking entities such as SMIs
and Pension Funds
• Insurance and Pensions sector are
integrated with banking sector and

• Well capitalized and liquid banks and
SMIs
• Collateral buffers by the settlement’s
banks lodged with CDC to cushion the
risk associated.
• The high level of interconnectedness in the
Zimbabwe financial sector means that
policy effects in investment funds could
spill over to other areas of the financial
system.
Increase

these together are the main source of
deposits for capital markets.
• Higher concentration risk of the
insurance and pension sectors to the
equities markets
• Prudentially regulated institutions in
aggregate maintain adequate capital
and liquidity buffers to absorb shocks
Money
Laundering
Risk
• The increasing risk of the money
laundering in the Zimbabwean
economy which then increase the
restricted cross-border transactional
ability impacting on imports and
exports, including hedging
opportunities, leading to a
corresponding decline in GDP.
• Reputational damage to Zimbabwe’s
financial system could have negative
capital and currency implications.


• SECZ enforces checks and verifies all
the information, sources of capital from
and has a reporting framework for
offsite monitoring of AML/CFT Risk and
awareness activities within the capital
market sector.
• High observance of Know Your
Customer (KYC)
• Increased compliance to FATF protocols
• Issuance and administration of
penalties on AML/CFT to sub sector
infringements.
• Coordinated response to address the
deficiencies identified through a
government led interdepartmental
committee on anti-money laundering,
counter financing of terrorism and
counter financing of proliferation to
coordinate Zimbabwe’s response.
• Persistent leakages and lack of a
coordinated approach to enforcement of
such cases.
• The delayed conviction of perpetrators
due to a slow judicial process.
• Maintaining financial integrity and
penalties imposed on some financial
institutions.

Increase


KEY
Green
- Level of risk is considered low
Amber- Level of risk is considered moderate
Red
- Level of risk is considered high
Trend
Green
- Level of risk is expected to decrease in the next 12 Months
Amber - Level of Risk is expected to remain stable in the next 12 Months
Red
- Level of risk is expected to increase in the next 12 months.
Capital Markets Developments
2.6.3 The capital markets had diversified licensed institutions as at 31 December 2022
(Securities Market Intermediaries), that support the smooth operations and
efficiency of the market as shown in table 9.
Table 9: Capital Markets SMIs
License Category
Q1 2022
Q2 2022
Q3 2022
Q4 2022
Dealing firms

Investment advisors

Investment managers

Securities exchanges

CSDs

Trustees

Custodians

Transfer Secretaries

Total SMIs

Total CIS

GRAND TOTAL (SMIs & CIS)

Unit Holders


2.6.4 Market turnover went up by 33% from ZW$33.2 billion for the quarter ending 30
September 2022 to ZW$44.1 billion for the quarter ending 31 December 2022 as
investors completed portfolio consolidations and acquisitions before year end.
2.6.5 The stock market capitalization went up quarter on quarter by 12% to ZW$ 2.04
trillion from ZW$1.8 trillion as at 30 September 2022. The increase in market
turnover and stock market capitalization reflect a growing confidence in the
economy and also lead to more efficient allocation of resources further
contributing to financial stability.
2.6.6 The use of a risk-based capital framework remains in place to constantly supervise
the sector’s solvency status and it largely remains a reliable tool to assess market
stability.
2.6.7 Equity market trading volumes and values are summarized in Figure 16 below.

Figure 16: Volume of Shares Traded Year on Year (2019- 2022)


2.6.8
The All Share and Top Ten indices went up by 32% and 35%, respectively from the
period ended 30 September 2022 to 31 December 2022 further reflecting the stability
of the capital markets.
2.6.9
The Victoria Falls Stock Exchange (VFEX) turnover for the fourth quarter stood at
USD3.2million from USD0.595million, a 446% increment from the figure reported for
the period ended 30 September 2022.
2.6.10
The VFEX recorded a volume of 14.6 million shares from 8.4 million shares traded
during the previous quarter and market capitalization grew by 30% to US$443.8
million from US$341.7 million reported in September 2022.

Table 10: VFEX Summary Statistics
Vic Falls Securities Exchange
Q4 -2022
Q3 -2022
Q2-2022
Q4-2021
% change
USD Turnover

Traded Volume

USD Market Cap

Number of listed Companies

-


No of Shares Traded
Millions
Month
Traded Volume YoY

2.6.11
The top ten contribution to the total market capitalization increased to 75.65% (Dec
2022) from 73.59% as at 31 December 2021 as presented in Figure 17.
Figure 17: Top Ten Counters to Market Capitalization


ZSE All Share Index (ALSI) Volatility
2.6.12 The ALSI volatility was calculated using industrial Indices from January 2018 to
December 2022. The ALSI Index Monthly Exponentially Weighted Moving Average
(EWMA) relative volatility is shown in Figure 19. The low volatility reflects stability
in the capital markets and investors can make more informed decisions and are less
likely to experience sudden losses.

Figure 18: All Share Index EWMA Relative Volatility (January 2018–December 2022)

Source: Zimbabwe Stock Exchange

2.6.13 The FINSEC Alternative Trading platform’s market capitalisation closed at ZW$10.79
billion, a 30% increase from ZW$8.3 billion reported for same period ending 31
December 2021. The turnover for the period was ZW$287 million, a 7% decrease
in revenue from ZW$308 million reported for the financial year ended 31 December
2021 while the volume of shares traded for the quarter decreased by 40% to 1.9
million from 3.2 million reported in 2021. The table below summarises FINSEC’s
overall performance.
Table 11: FINSEC-ATP Performance Summary
Financial Securities
Exchange
Q4 -2022
Q3 -2022
Q2-2022
Q4-2021
%
change
ATP Turnover

ATP Traded Volume

ATP Market Cap
10,791,523,47

12,451,757,85

19,739,655,36

8,301,171,90

-13%
Number of listed
Companies

Assets under Custody
2.6.14 The custodial services business, which is mainly executed by registered banks held
assets on behalf of clients as at 31 December 2022 worth ZW$1.44 trillion from Q3
2022:ZW$1 trillion. The increase in custodial services business is generally a
positive indicator for overall financial stability. Custodial services are an essential
part of the financial industry, and an increase in demand for such services partly
reflects investor confidence in the market's stability.
2.6.15 The foreign clients owned assets composition increased to 19.9% in December
2022 from 16% as at 30 September 2022, while the local clients’ assets, declined
from 84% in September 2022 to 80.1% in December 2022.

Table 12: Asset Under Custody Summary

Q4 2022
Q3 2022
Q2-2022
Q4 2021
Change
Assets under Custody

Foreign Clients Owned Assets

Local Clients Owned Assets

% Foreign Clients Composition

% Local Clients Composition


2.6.16 The capital adequacy and supervisory assessments of the licensed entities i.e.,
Custodians which are predominantly banks are currently done in conjunction with
the Central Bank’s Capital Adequacy framework. The custodial banks were all
adequately capitalised as at 31 December 2022.
2.6.17 Unclaimed Shares: As at 31 December 2022, The unclaimed shares portfolio was
valued at ZW$2,537,469,691.18. SECZ is currently working with the Ministry of
Finance and Economic Development to incentivize and encourage claims on these

shares. The proposed incentives include the removal of statutory fees upon an
investor coming forward to claim their shares and trade them through the market.

2.7 INSURANCE AND PENSIONS INDUSTRY

2.7.1 The insurance and pensions sector showed resilience and stability amidst a difficult
operating environment characterised by inflationary pressures in the first half of
the year which eroded value for policyholders and members.

Risks to the Insurance and Pensions Industry
2.7.2 The major risks identified were reputational and strategic risks with inherent risks
rated high, while the residual risks were rated moderate. Reputational risk was
high on account of loss of confidence in the sector owing to legacy issues related
to losses of value from the 2009 currency reforms. This led to the Justice Smith
led Commission of Inquiry which recommended compensation to policyholders
and pension fund members. Work is ongoing to effect the compensation in 2023.
Strategic risk was mainly linked to viability challenges faced by sponsoring
employers as well as co-existence with the mandatory pension scheme.
2.7.3 While these two major risks were rated high in the sector, they pose minimal
threat to financial stability.
2.7.4 The table below shows the identified risks that threaten the insurance and
pensions industry as well as their mitigants.
Table 13: Insurance and Pensions Key Risks and Mitigants - December 2022

Description
Inherent
Risk Level
Risk Mitigation Measures
Residual Risk
Direction
Reputational
Risk - high
The industry faces high reputational risk
owing to legacy issues, the 2009 loss of
value in pensions which has been
worsened by the delays in finalising
implementation of the Justice Smith
Inquiry’s recommended compensation
framework.
High
•
Finalisation of the 2009
Compensation Framework.
Compensation of fund members and
policyholders is expected to bring some
relief to the expectant public and is
envisaged to bring back some confidence
to the industry.
•
Enforcing implementation of the
Guideline by the Insurance and Pensions
Industry on Adjusting Insurance and
Pension Values to ensure allocation of
revaluation gains.
•
The Commission is also
disbursing the US$400,000 dividend from
the US$75 million Kuvimba Mining House2
investment.
Moderate
Stable
Strategic
Risk - high
• Strategic risk was rated high on
account of viability challenges for
some
sponsoring
employers,
transformational trends in technology
and consumer preferences in the
insurance
industry
as
well
as
threatened
co-existence
of
occupational pension schemes and the
Government
administered
National
Social Security Pension Scheme under
National Social Security Authority
(NSSA). This has resulted in the high
number of dissolutions, redundancy of
some products especially life and an
increasing number of funds opting out
of private schemes given the continued
High
•
Government efforts in
stabilising the economy.
•
Engagements on aligning
the co-existence framework for the
three pillars of pension provision in
Zimbabwe
•
Issued a Dissolution Directive to
ensure orderly exit of pension funds from
the market to avoid prejudice of fund
members.
Moderate
Stable

2 This is a mining company in which IPEC has a 5% shareholding.

rise in NSSA premiums and the
benefits.
Operational
Risk –
Moderate
•
Operational risk was rated
moderate owing to the threat of ICT
failures emanating from cyber attacks
though none have been reported to
date, high cost of living against
depressed wages and pension values
and capacity constraints from service
providers, mainly preparers of financial
statements and auditors.


• Review of Expenses Framework for Pension
Funds
•
Participation of IPEC in the Innovation
Lab3, Development of an Agricultural Insurance
Index Regulatory Framework, approval of
agricultural
Insurance
Index
products,
participation in the Regulatory Sandbox to
ensure that the industry develops products that
are fit for purpose.

Stable
Liquidity Risk
– Moderate
•
Liquidity risk was considered
moderate on account of increasing
contribution arrears, increasing
premium debtors and the continued
suspension of Old Mutual and PPC
shares. Contribution arrears increased
by 514% from ZW$4.27 billion to
ZW$26 billion whilst premium debtors
registered a 635% increase from
ZW$3.22 billion to ZW$23.66 billion),
constituting 22% of total assets for
direct short-term underwriters during
the review period.

•
Failure by pension funds and
insurance companies to pay claims and
pension benefits on time – time value of
money.
•
Reduces
confidence
in
the
insurance and pensions industry.
•
High contribution arrears and
premium debtors negatively affect the
payment of future pension benefits and
the
capacity
of
insurers
to
meet
policyholder claims.
•
Ordinarily insurers depend on the
steady inflow of premiums such that if
premium debtors increase, it affects the
performance of the Insurance Fund and
ultimately the settlement of claims.

•
Garnish powers in new Pensions
and Provident Funds Act [Chapter 24:32]
•
Aggressive initiatives to encourage
collection of contribution arrears including
publication of defaulting sponsoring
employers.
•
Naming and shaming defaulting
sponsoring employers
•
Encouraging the insurance
industry to self-regulate to reduce premium
debtors as a stop gap measure as the No
Premium No Cover Policy undergoes
approval.
•
Finalising the No Premium No
Cover to address the issue of premium
debtors.
•
More REITS coming into the
market

Stable
Solvency
Risk –
moderate
•
Solvency risk was rated
moderate emanating from low
funding levels for 30% of


•
Continued enforcement of the
Guidance Paper on Currency Reforms to
ensure equitable allocation of revaluation


Increase

3 This is an initiative spearheaded by the Access to Insurance Initiative (A2ii) to improve resilience of small scale farmers. Zimbabwe is participating with Zambia and Grenada.

Direct Benefit funds and the
change to Risk Based Capital
as well as the envisaged
compensation payments for
the loss of pension values in
2009. With regards to Risk
Based capital, some insurers
may fail to recapitalise to the
required levels.

gains to pension fund members and
policyholders following the 2019 currency
reforms; and
•
Encourage regulated entities to
put in place measures to raise required
capital under new regime ahead of the
gazetting.
•
Issued circular for the industry
to start mobilizing compensation
resources using draft regulations to avoid
last minute rush.
•
Issued
Guidelines/Frameworks/Directives.
3. FINTECH DEVELOPMENTS AND CYBER SECURITY RISK

3.1 Fintech Developments
3.1.1 Developments in the fintech space continue to provide enhancements to
financial services delivery. To ensure that fintechs enter the Zimbabwean
financial services sector in an orderly manner, regulators have taken measures
to support the growth of the fintech companies through the establishment of a
regulatory sandbox, amongst other policy initiatives. Inadequate and / or
inappropriate regulation of fintechs has financial stability implications arising
from system failure, personal data mining, hacking, identity theft, aggressive
digital credit offers, cyber-security, data privacy, overpricing, over-lending, and
fraud.

Regulatory Sandbox
3.1.2 A total of twenty-three (23) applications had been received for sandboxing
while twenty (20) additional applications were at various stages of evaluation
as at 31 December 2022. The applications received in the Regulatory Sandbox
were largely focusing on financial inclusion products, retail payments and equity
crowdfunding. The Figure below shows the distribution of applications to the
regulatory sandbox.

Figure 19: Distribution of Applications to Regulatory Sandbox as at 31 December 2022


3.1.3 In the insurance and pensions sector, IPEC is participating in the Innovation
Lab4, which is spearheading the development of an Agricultural Insurance Index
Regulatory Framework, approval of agricultural Insurance Index products, and
participation in the Regulatory Sandbox to ensure that the industry develops
products that are fit for purpose.
3.1.4 Through its Innovation office, SECZ continues to guide fintech service providers
on how fintech products may be customized to suit the current legislative
framework.

3.2
Central Bank Digital Currency (CBDC) Project

3.2.1 There is a growing momentum towards exploring Central Bank Digital
Currencies (CBDCs) amongst central banks globally. Pursuant to that, the Bank
initiated the CBDC Project to explore the benefits and potential risks of
implementing CBDC.

4 This is an initiative spearheaded by the Access to Insurance Initiative (A2ii) to improve resilience of small scale
farmers. Zimbabwe is participating with Zambia and Grenada.

Digital ID
Financial Advisory
Mobile Money Services
Regtech
P2P Lending
Smart Contracts
APIs
Wealth Management
Money transfer
Equity Crowdfunding
Not Specified
Retail Payment
Financial Inclusion

3.2.2 In May 2023, the Reserve Bank issued digital gold backed tokens. The tokens
have increased the number of available value-preserving instruments in the
market and divisibility of investment instruments for the public

3.3
Cybersecurity

3.3.1
The ecosystem of cybersecurity is ever-changing and cyber-attacks continue to
expand in scale and scope.
3.3.2
The INTERPOL report (2021) indicated increased rate of cyberattacks within
the African Region which has recorded a 100% increase from 2020 to 2021. A
cyberattack that affects data at one financial institution may result in loss of
confidence in the security of the financial sector leading to bank runs in banking
institutions and a freeze in the demand for other financial services.
3.3.3
In this regard, investments on ways to manage cyber risk is growing and
financial sector regulators are implementing various policies to reduce incidents
of cyber risk within the Zimbabwean financial sector.
3.3.4
To strengthen the cyber security in the banking sector in line with best
practices, the Reserve Bank is ensuring the full implementation of the Europay,
MasterCard and Visa (EMV) compliance and SWIFT Customer Security
Program among other programs across all participant banks.
3.3.5
Further, in order to protect the consumers and the public in general from the
increasing number of cyber and digital payment frauds, the Bank in
collaboration with the Consumer Council of Zimbabwe,
Post and
Telecommunications Authority of Zimbabwe intensified the road-show
awareness initiatives under ‘The Fair Digital Finance’ theme during the year.
The Road shows covered all provinces across the country and selected districts
during the period under review.
3.3.6
Regulatory authorities have continued to ensure that market players have
specialized and trained staff to enhance the understanding of the new
innovations and disruptive technologies as well as the associated risks.
3.3.7
Following the issuance of the Risk Based Cyber Security Guideline in 2021, the
Bank, with the support of the IMF under a Technical Assistance program,

initiated a review and enhancement of the Guideline. The program is
anticipated to be completed in 2023.
3.3.8
Given the prevalence of cybercrimes, the enhanced Guideline will promote
effective and efficient management of the cyber risk in the banking and
payment systems sectors thereby fostering financial stability.
3.3.9
SECZ is conducting investor education to raise awareness on cyber threats and
is encouraging licensed entities and investors to conduct proper due diligence
before engaging in various investment activities. In addition, SECZ is working
on enhancing its prevention, timely detection, response, and recovery from a
cyber attack.

3.4
Market Conduct
3.4.1
Financial sector supervisory authorities continue to focus on market conduct
supervision that promotes ethical conduct of business by financial services
providers. SECZ is set to resume market conduct supervision activities focusing
on fund managers and stockbrokers compliance with the Asset Management
Conduct rulebook and other guidelines to foster an improved and well governed
capital markets ecosystem.

4. MONEY
LAUNDERING
AND
FINANCIAL
CRIME
RELATED
ACTIVITIES:
RISKS
TO
FINANCIAL
STABILITY

4.1 Zimbabwe has made concerted efforts to implement robust anti-money laundering,
combating financing of terrorism and proliferation of weapons of mass destruction
(AML/CFT/CPF) frameworks. At national level, the Government has made a firm
commitment to work with the Financial Action Taskforce (FATF) to align the
AML/CFT/CPF frameworks with the required international standards.
4.2 Strong AML/CFT/CPF frameworks foster economic stability by creating confidence,
enhancing investment, promotion of economic growth as well as insulation of
financial resources from illicit proceeds generated by criminals.

Supervisory Approach
4.3 The financial sector in Zimbabwe is considered to be the cornerstone of economic
growth and development through its financial intermediation role. The sector is
characterised by presence of large customer base, myriad transactions ranging from
simple to complex transactions, large asset base as well as offering many products
and services. These inherent characteristics opens the financial sector to
heightened money laundering and terrorist financing risks.
4.4 The financial sector supervisors including the Reserve Bank of Zimbabwe, Insurance
& Pensions Commission and Securities Commission of Zimbabwe have implemented
robust supervisory frameworks to mitigate the heightened inherent money
laundering, terrorist financing and proliferation financing (ML/TF/PF) risks.
4.5 All supervisory authorities adopted and implemented the risk based AML/CFT
supervision approach (RBA) in 2022. The RBA entails identification, assessment and
understanding of all the ML/TF risks facing financial institutions. The risk
assessment informs the supervisory strategies to be adopted and guide effective
resource allocation. These risks include customer, geography, channels and
product/service risks.

AML/CFT/CPF Legal Framework
4.6 Zimbabwe’s AML/CFT legal framework is in line with FATF standards and consists
mainly of three pieces of legislation, namely, Money Laundering and Proceeds of
Crime Act [Chapter 9:24], Bank Use Promotion Act [Chapter 24:24], and
Suppression of Foreign and International Terrorism Act [Chapter 11:21].
4.7 Other pieces of legislation include Statutory Instrument 76 of 2014 which provides
a framework for identifying and freezing of assets of persons designated by the UN
under the Taliban and Al Qaida sanctions lists and SI 110 of 2021 which provides a
framework for Implementation of Targeted Financial Sanctions against financing of
proliferation of Weapons of Mass Destruction (WMD).
Main Predicate offenses
4.8 Zimbabwe conducted an AML/CFT National Risk Assessment (NRA) in 2019 and the
following predicate offences which generate proceeds of money laundering and
terrorist financing were noted to be prevalent.
Illegal dealing in gold and precious metals
4.9 Illegal dealing in gold was noted to have been occurring in the informal sector
where some unregistered buyers were buying gold direct from artisanal miners in
the absence of adequate measures to identify the buyers and to verify their source
of funds.
4.10 The law enforcement agents have enhanced security around the illegal mining
geographies to curb the illegal activities.

Smuggling
4.11 Smuggling was noted to be perpetrated through borders with neighbouring
countries. Items smuggled range from clothing, food staffs, electrical gadgets
tobacco and precious minerals. This generates proceeds which are susceptible to
money laundering and terrorist financing. The relevant authorities have enhanced
security around the border posts to curb the malpractices.

Corruption
4.12 Corruption cases have been on the increase in the country. The main forms of
corruption were noted to be abuse of office, procurement malpractices and bribery.
These generated proceeds that were used by criminals to purchase assets as a way
of hiding the true origin of the funds.
Fraud
4.13 There has been an increase in fraud cases involving card fraud and embezzlement.
The law enforcement agents have made several arrests and recovery of proceeds
of crime.
Tax Evasion
4.14 The prevalence of informal businesses with minimum or no accounting records has
resulted in revenue leakages. Some formal businesses are also evading paying tax
and re externalising profits offshore. These illicit proceeds have a potential to be
used for money laundering and terrorist financing.

Other Noted Offences
Illegal Dealing in Foreign Currency...
4.15 Trading of foreign currency outside formal financial channels continued to be a
significant risk to financial stability during the period under review.
4.16 Over the course of 2022, the Financial Intelligence Unit (FIU) increased scrutiny
and analysis of financial transactions and required banks to conduct enhanced
monitoring to identify and report suspicious transactions. The FIU used various
powers to bring stabilise the economy, including freezing of bank accounts and
levying administrative penalties to offending companies and blacklisting companies
and individuals for repeat offenses.
Government contractors over-pricing of goods and services
4.17 The FIU noted a phenomenon where companies were over-pricing (forward pricing)
goods and services supplied to government in anticipation of future depreciation of
the local currency against the US dollar.

4.18 The super-profit generated by this speculative behaviour were offloaded on the
parallel market which resulted in destabilising the foreign exchange market and the
economy at large. Thus the government introduced the value for money audits to
curb the malpractice.
Abuse and externalisation of foreign currency
4.19 In the course of 2022, several companies were identified and penalised for
accessing foreign currency on the auction platform and subsequently externalising
the funds through overpricing imported goods, falsification of invoices and bills of
entry, payment of non-existent or inflated commissions to agents and conniving
with foreign supplies, who in many instances turned out to be related parties.
4.20 The risk was reduced through continued monitoring and tighter controls around the
auction system to plug the loop-holes, coupled with the convergence between the
parallel and auction rates.

5.
REGULATORY DEVELOPMENTS AND OUTLOOK
5.1
An enabling legal and regulatory framework supports the availability and proper
functioning of the financial sector, thereby ensuring stability even in periods of
financial markets stress.
5.2
To enhance the safety and security of the financial sector, financial sector
regulators, on an ongoing basis, review the legal and regulatory framework in
line with market developments with the view to align the frameworks with
international standards.
5.3
The Reserve Bank implemented the Bank for International Settlement’s 24
Principles of Financial Market Infrastructures (24 PFMIs) self-assessment
recommendations during the period under review. The findings showed that
institutions had largely implemented the recommendations.
5.4
Domestic financial sector regulatory authorities are in the process of developing
a Macro-prudential Policy Framework and Contingency Planning and Systemic
Crisis Management Policy Framework. The Macro-prudential Policy Framework
will provide for the development of prudential tools to limit system-wide financial
risk to minimise the incidence of disruptions in the provision of key financial
services that can have serious consequences for the real economy.
5.5
The Contingency Planning and Systemic Crisis Management Policy Framework
will spell out actions and processes necessary for the prevention, management
and containment of financial sector systemic distress and crisis.
5.6
The Reserve Bank will continue to implement policies that anchor inflation and
exchange rate expectations to sustain price and exchange rate stability which
support the maintenance of financial stability.
5.7
The new Pensions and Provident Funds Act [Chapter 24:32] which was gazzetted
in September 2022, aligns the pensions regulatory framework with international
standards. The Act also provides for enhanced consumer protection for members
and their beneficiaries. This is expected to improve the public’s confidence in the
pensions industry.
5.8
Securities and Exchanges Commission of Zimbabwe introduced SI 216 of 2022
and SI 217 of 2022 which set new regulations on licensing and registration of

SMIs. The Statutory Instruments, which set out penalties for non-compliance,
are expected to at enhance compliance levels of market participants.

Outlook
5.9
The decline in inflation coupled with the stabilisation of the exchange rate, is
expected to support the maintenance of financial stability. Regulatory
enhancements by the financial sector authorities will also contribute to continued
financial stability.
5.10
The downside risks to financial stability will, however, continue to come from the
external macroeconomic environment due to uncertainties surrounding the
Russia-Ukraine geo-political conflict, tightening of global financial markets as
central banks implement measures to contain inflation and the depressed global
economic outlook.

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 σ
wr
r=c,a,e,q,s
= 1
ANNEX 1: BANKING SECTOR SOUNDNESS INDEX (BSI)
ANNEX 2: Macroeconomic Indicators for Zimbabwe

REAL SECTOR


Real GDP at 2019 Market prices (Z$'m)

GDP at Market Prices % changes

GDP per capita

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)

Capital a/c balance (US$M)

MONETARY SECTOR


Broad Money M3 (ZWL$ '000)

Domestic Credit (ZWL$ '000)

Credit to Private Sector (ZWL$ '000)

Credit to Public Parastatals (ZWL$ '000)

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

Nominal Minimum Lending Rate (%)

Nominal Maximum Lending Rate (%)

PUBLIC FINANCES


Government Accounts (ZWL$ m)


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)


ANNEX 3: Financial Sector Indicators

Banking Sector


Capital Adequacy Ratio

Nonperforming Loans Ratio

Large Exposures to Capital

Return on Equity

Return on Assets

Prudential Liquidity Ratio

Capital Market


Market Capitalisation (ZW$)

All Share Index


R
E
S
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R
V
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B
A
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K
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Z
I
M
B
A
B
W
E
Reserve Bank of Zimbabwe
80 Samora Machel Avenue.
Box 1283 Harare, Zimbabwe
Tel: +263 242 703 000, +263 867 700 0477
Email:
Reserve Bank of Zimbabwe
93 Leopold Takawira Street.
Box 399 Bulawayo, Zimbabwe
Tel: +263 8677002046, +263 0292 272 141-5
Email: