Zimbabwe’s banking sector is grappling with a worsening lending squeeze as tight monetary policy and impending de-dollarisation deadlines constrain credit extension, raising renewed concerns about the country’s growth prospects. This is according to the latest Morgan & Co 2026 Financial Services Sector Report.

Statutory reserve ratios remain prohibitively high—30% for demand deposits and 15% for savings and fixed deposits across both ZWG and foreign-currency accounts. This has sharply reduced banks’ capacity to deploy local funds, forcing institutions to rely heavily on expensive offshore credit lines now estimated at over US$500 million sector-wide.

“These credit lines currently complement existing deposits in growing banks’ lending book. Credit lines are not subject to statutory reserve requirements, but they come with relatively lower lending margins compared to locally funded income,” Morgan & Co notes.

The liquidity strain persists despite record deposit inflows driven by strong gold exports, tobacco deliveries, and robust diaspora remittances. Lending has failed to keep pace, further constrained by the cap on USD loan tenors to 2030—a measure intended to protect banks’ balance sheets amid uncertainty around the future of multi-currency use.

Major institutions—Ecobank, FBC, CBZ, and Stanbic—which collectively hold about 68% of deposits, continue to dominate lending. However, each faces mismatches between available tenors and financing needs across key sectors. Agriculture absorbed 16% of loans in Q3 2025, while capital-intensive sectors such as mining and real estate remain underserved due to their long-term funding requirements.

Bank-Specific Pressures Intensify

FBC Holdings recorded a surge in impairment losses during 1H25, with policy tightening muting interest income despite loan book growth supported by deposits and external credit lines. Forecasts point to subdued lending and persistent impairments throughout the year.

First Capital Bank continues to battle delayed civil servant repayments and high reserve requirements that limit deployable cash, eroding operating cash flows even as its loans-to-deposits ratio (LDR) remains steady.

ZB Financial Holdings saw its loan book contract significantly, with its LDR dropping to 57% from 73% in FY24, after the bank scaled back exposure to agriculture and mining due to rising impairments.

NMBZ Holdings benefited from strong deposit growth, achieving 40% lending income growth in 1H25, though margins remain tight. Analysts anticipate a dip in FY25 earnings before recovery prospects strengthen.

Non-performing loans (NPLs) have generally eased, supported by abundant USD liquidity from exports and remittances. However, analysts warn that meaningful declines will depend on interest rates softening further in 2026 and credit demand improving.

Banks Pivot to Non-Interest Income

With traditional lending under pressure, banks are increasingly relying on fees, commissions, and transaction-based income as foreign-exchange revaluation gains diminish under a more stable ZWG environment. CBZ, Stanbic, and Ecobank—responsible for 60% of formal transactions—are benefiting from increased economic activity linked to strong agricultural output driven by La Niña conditions and rising global gold prices.

Commenting on lending dynamics, financial analyst Tinashe Mukogo says a basic comparison of average interest rates and borrower risk already highlights the attractiveness of retail lending.

“Using the mid-point of current lending rate ranges, banks are earning about 15.54% on individual loans compared to 13.04% on corporate loans. That’s a 2.50-percentage-point premium for retail clients,” Mukogo explains.

“On the risk side, taking the mid-range of non-performing loan ratios shows individuals carry 1.83 percentage points more risk. When you net these out, you still get an additional 0.67 percentage points in margin from lending to individuals.”

He notes that the calculation is simplified and does not capture variations in loan terms, collateral quality, tenure differences, or behavioural risks. However, he adds:

“The underlying insight stands—on average, the reward for lending to individuals outweighs the incremental risk. In an environment where banks face margin compression, tight policy, and low credit demand, retail lending offers a viable path to preserve profitability.”

The Financial Services Index has declined 26% in USD terms over the past 52 weeks, outpacing the broader market’s 10% fall. Individual counters such as TN CyberTech (-69%), ZBFH (-28%), and CBZ (-24%) have dragged the sector down.

According to Morgan & Co, the monetary tightening introduced in September 2024 significantly slowed the recovery of lending operations following the introduction of the ZWG.

The report warns that uncertainty around the use of the US dollar beyond 2030 will likely keep lending subdued—even if interest rates fall—as shortened loan tenors increase principal repayment burdens for borrowers.

“The shorter tenor cuts out several industries—real estate and mining, for example—that require long-term capital,” the report adds.