Zimbabwe banks warn credit crunch could undermine economic growth

Zimbabwe’s major financial institutions have warned that the country’s prolonged tight monetary and fiscal policies, while instrumental in stabilising inflation and the exchange rate, are increasingly constraining private sector growth, limiting lending capacity and affecting the banking sector’s ability to fully support economic expansion.

The concerns emerged in annual statements by the chairpersons of ZB Financial Holdings and FBC Holdings, which highlighted a growing trade-off between maintaining macroeconomic stability and ensuring adequate liquidity to stimulate productive sectors of the economy.

ZB Financial Holdings cautioned that although the Reserve Bank of Zimbabwe’s tight monetary policy had helped maintain exchange rate and price stability, high statutory reserve requirements and the sustained 35 percent policy rate constrained credit growth and reduced banks’ lending capacity.

The rate was however reduced to 30% this week.

The group warned that authorities may eventually need to recalibrate policy measures to strike a balance between preserving stability and promoting private sector investment and overall economic growth.

“While these measures supported currency stability, they also constrained credit growth, limiting the banks lending capacity,” ZB chairperson Agnes Makamure stated.

FBC Holdings expressed similar concerns, saying the current tight monetary and fiscal stance had created funding constraints that were limiting the banking industry’s ability to perform its financial intermediation role.

The group noted that while measures such as paying interest on deposits had improved deposit retention, banks were increasingly seeking foreign lines of credit to supplement funding for lending activities.

The concerns come despite a significant improvement in Zimbabwe’s macroeconomic environment during 2025, with both institutions acknowledging that economic growth accelerated to 6.6 percent, supported mainly by strong agricultural and mining output.

The period saw improved maize and wheat harvests, record tobacco production exceeding 350 million kilogrammes and a sharp rise in gold production.

Both banks also acknowledged the success of monetary tightening in reducing inflation and stabilising the Zimbabwe Gold (ZiG) currency. Annual weighted inflation declined significantly during the year, while exchange rate movements remained largely contained.

However, the same stability reduced opportunities for banks to generate substantial foreign exchange and fair value gains that had boosted earnings during periods of higher currency volatility.

ZB Financial Holdings reported that profit after tax fell to ZWG0.679 billion from a restated ZWG1.042 billion in 2024, largely due to lower exchange gains following the stabilisation of the ZiG exchange rate.

The group, however, reported an improvement in sustainable earnings from its core business activities.

FBC Holdings also reported a decline in total net income as revaluation and fair value gains dropped sharply, but its underlying operations strengthened.

The group recorded an 84 percent increase in profit before tax to US$31.4 million and a 69 percent rise in profit after tax to US$30.4 million, supported by stronger lending, transaction processing, fee income and disciplined cost management.

The two financial groups said the changing operating environment was forcing banks to shift away from reliance on inflation-related and exchange-rate gains towards more sustainable income generated from traditional banking services.

Both institutions also highlighted the need for continued investment in digital transformation, innovation and financial inclusion to remain competitive in a rapidly changing financial services landscape.

Looking ahead, the banks maintained a cautiously optimistic outlook, citing expected economic growth in 2026, supported by agriculture, mining and other productive sectors.

However, they warned that structural challenges such as foreign currency shortages, energy supply constraints, infrastructure gaps, global geopolitical tensions and trade uncertainty could continue to weigh on economic performance.

The statements indicate that Zimbabwe’s banking sector broadly supports the authorities’ drive for macroeconomic stability but is increasingly calling for a policy balance that protects price and exchange rate gains without excessively restricting credit, investment and private sector activity.