CBZ Holdings is looking to supplement its local deposits with lines of credit, according to Chief Executive Officer Lawrence Nyazema.
In a video interview with Business Weekly, Nyazema explained that the bank can no longer rely solely on local deposits for funding and will need to explore other avenues.
The financial services Group has approximately US$1 billion in deposits while lending facilities are around US$300-US$400 million. However, more than 90 of the funds are demand deposits.
“Up until last year, we relied entirely on our own customer deposits,” Nyazema said. “However, to continue supporting the economy, we, as the largest financial player in the country, have identified the need to also seek lines of credit.”
He revealed that the bank expects to secure around US$80 million from one financial institution and an additional US$20 million from another. Currently, CBZ has only US$40 million in lines of credit, but they aim to increase this amount.
Nyazema acknowledges the double-edged nature of lines of credit: “They create a hard currency liability on your balance sheet. The foreign provider of the funds will expect repayment when the time comes.”
“Therefore, we’ve been cautious in growing our lines of credit,” he continued. “Our balance sheet could potentially handle much higher amounts, maybe up to half a billion dollars. But we’re not rushing into that. We want to ensure we can repay all our foreign creditors regardless of the underlying debt performance.”
Nyazema, who also leads the Bankers Association of Zimbabwe, estimates that local banks have a combined total of US$300-US$400 million in lines of credit.
However, international lines of credit come at a high cost. Nyazema disclosed that the interest rates typically exceed 10 percent.
“The unfortunate reality is that these lines of credit come with high interest rates. As of yesterday, May 23rd, 2024, a first-class bank in the United States was borrowing overnight money at around 5.5 percent. By the time those funds reach our region, the interest rate doubles. So, if you’re getting a line of credit at 11 percent, how can you expect your customers to profitably use those funds and repay the loan?”
“This creates a balancing act,” Nyazema said. “We need to grow our loan book, but we also need to manage the associated risks.”
The Reserve Bank of Zimbabwe recently raised the statutory reserve requirement for US dollar balances from 15 percent to 20 percent. This measure aims to prevent a repeat of the Zimbabwe Asset Management Company (ZAMCO) situation, which became a burden for taxpayers. ZAMCO was established in 2014 to address a banking sector crisis caused by a high volume of non-performing loans (NPLs). At that time, the NPL ratio had risen to 20.45 percent, significantly exceeding the internationally accepted threshold of 5 percent.
Nyazema further revealed that Zimbabwean banks hold nearly US$3 billion in deposits, but only half of this amount is currently being loaned out. He attributes this to factors such as the nature of deposits, the upcoming 2028 elections, and the end of the multicurrency system in 2030.
He estimates that local banks hold about US$2.7 billion in deposits, with nearly 90 percent denominated in foreign currency. Additionally, credit lines contribute another US$300-$400 million, bringing the total available lending pool to roughly US$3 billion.
Despite this availability, banks have only advanced approximately US$1.5 billion. This translates to a low loan-to-deposit ratio compared to regional and international markets.
“Looking at banks in Namibia,” Nyazema said, “they lend roughly 80 percent of their deposits, with 20 percent reserved for liquidity. However, in our case, due to the multicurrency system and a high proportion of demand deposits, we maintain a larger liquidity buffer to meet cash withdrawal needs.”
He explained that Zimbabwe’s economy relies heavily on cash, particularly foreign currency. As a result, banks set aside nearly US$1 billion in nostro accounts and cash to ensure immediate availability for client withdrawals. This cautious approach stems from a desire to avoid a repeat of past trust issues in the banking sector.
To improve the loan-to-deposit ratio, Nyazema suggests converting current deposits into savings or fixed deposits, which offer longer terms and are more suitable for lending. However, he acknowledges the challenge: The current structure, with 90 percent of deposits in current accounts, means these funds must be accessible on demand.
