dedup/cb_requests/0161a84fcd1f5fcb49f4e875639dd909.json

{"doc_id": "0161a84fcd1f5fcb49f4e875639dd909", "text": "R\nE\nS\nE\nR\nV\nE\n \nB\nA\nN\nK\nO\nF\n \nZ\nI\nM\nB\nA\nB\nW\nE\n \nANNUAL FINANCIAL \nSTABILITY REPORT \n2020 \n \n2 \n \nTable of Contents \nPurpose of the Report .............................................................................................................................. 5 \nGOVERNOR’S FOREWORD ............................................................................................................... 6 \n1. \nFINANCIAL STABILITY RISKS ................................................................................................. 9 \n2. \nBANKING SECTOR SOUNDNESS ............................................................................................ 17 \n3. \nCAPITAL MARKETS .................................................................................................................. 28 \n4. \nINSURANCE AND PENSIONS INDUSTRY ............................................................................. 36 \n5. \nDEPOSIT PROTECTION SYSTEM ........................................................................................... 46 \n6. \nFINANCIAL MARKETS INFRASTRUCTURE........................................................................ 50 \n7. \nAML/CFT SURVEILLANCE INITIATIVES ............................................................................ 60 \n8. \nOUTLOOK ..................................................................................................................................... 65 \nAppendices .............................................................................................................................................. 69 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n3 \n \nList of Tables \nTable 1: Macroeconomic Environment Heat Map ............................................................................. 16 \nTable 2:Banking Sector Risk Matrix as at 31 December 2020 .......................................................... 20 \nTable 3: Regulated institutions in the Capital Markets ..................................................................... 28 \nTable 4: Securities Exchanges Performance ....................................................................................... 29 \nTable 5: Equity Markets Performance Summary............................................................................... 30 \nTable 6: FINSEC ATP Performance Summary .................................................................................. 32 \nTable 7 : Asset Management Summary (December 2020) ................................................................. 33 \nTable 8: Summary of Key Risks to Capital Markets and Risk Mitigation Measures ..................... 35 \nTable 9 : Insurance Sector Infrastructure ........................................................................................... 36 \nTable 10 : Insurance Sector Premium Income .................................................................................... 37 \nTable 11 : Insurance Industry Assets and Liabilities ......................................................................... 37 \nTable 12 : Insurance Sector Minimum Capital Requirements Compliance..................................... 38 \nTable 13: Financial performance of the Pensions Industry ............................................................... 39 \nTable 14: Compliance with Minimum Capital Requirements as at 31 December 2020 .................. 42 \nTable 15: Insurance and Pensions Sector Risk Matrix....................................................................... 44 \nTable 16: Deposit Insurance Coverage for Conventional Banking Institutions ............................... 46 \nTable 17 : Deposit Protection Cover for DTMFIs as at 31 December 2020 ..................................... 47 \nTable 18:Risk to the Financial Safety Net ........................................................................................... 47 \nTable 19: Payment Systems Risk Management Assessment Matrix ................................................. 55 \nTable 20: Overall Payment Systems Risk Assessment Matrix ........................................................... 56 \nTable 21: Payment Systems Risk Assessment by Risk Type .............................................................. 56 \n \n \n \n \n \n \n \n \n \n \n \n \n \n4 \n \nList of Figures \nFigure 1: Global Economic Growth (%) ................................................................................................ 9 \nFigure 2: Zimbabwe GDP Growth (%) ............................................................................................... 12 \nFigure 3 : Exchange Rate Developments (ZW$/US$) ......................................................................... 13 \nFigure 4: Annual Inflation (%) ............................................................................................................. 14 \nFigure 5: Banking Sector Soundness Index and Sub-Indices ............................................................ 17 \nFigure 6 : Banking Sector Net Capital Base (ZW$ Millions) and CAR (%) .................................... 19 \nFigure 7 : Banking Sector Income Components.................................................................................. 20 \nFigure 8: Trend in NPL Ratio ............................................................................................................... 21 \nFigure 9: Credit Stress Test: Increase in NPLs ................................................................................... 22 \nFigure 10: Default of top five largest borrowers ................................................................................. 22 \nFigure 11: Liquidity Stress Test Results .............................................................................................. 23 \nFigure 12: Prudential Liquidity Ratio ................................................................................................. 24 \nFigure 13: Interest Rate Risk Shocks ................................................................................................... 25 \nFigure 14: Foreign Exchange Risk Stress Test Results ...................................................................... 26 \nFigure 15: Zimbabwe Stock Exchange Volume/ Turnover ................................................................ 30 \nFigure 16: Top Ten Counters to Market Capitalisation ..................................................................... 31 \nFigure 17: All Share Index EWMA Relative Volatility (January 2018 –December 2020) .............. 32 \nFigure 18: Funds under Management as at 31 December 2020 ......................................................... 34 \nFigure 19: Total Assets by Class of Investment as at December 2020 .............................................. 39 \nFigure 20: Total Annual Payment Systems Transactions from 2009 - 2020..................................... 50 \nFigure 21: RTGS Annual Transactional Values and Volumes 2009-2020 ....................................... 51 \nFigure 22: Mobile Payments Interoperability Transaction October 2020-March 2021 ................. 53 \nFigure 23: Payment System Initiatives 2018-2020 .............................................................................. 54 \n \n \n \n \n \n \n \n \n \n \n \n5 \n \nPurpose of the Report \nThe financial stability report presents an analysis of the status and potential \nrisks to the financial system and an overall assessment of its stability for the \nyear ending December 2020. The report reflects a collective assessment of risks \nto financial stability by all financial sector regulators in Zimbabwe constituting \nthe Multidisciplinary Financial Stability Committee (the Reserve Bank of \nZimbabwe, Deposit Protection Corporation, Insurance & Pensions \nCommission and Securities & Exchange Commission). \n \nThe main purpose of the publication is to provide an update on the risks to \nfinancial stability and the regulatory initiatives being undertaken to minimise \nthe impact of the identified risks. \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n6 \n \nGOVERNOR’S FOREWORD \n \n1. This edition of our Financial Stability Report is presented amid the Covid-19 \npandemic which has impacted all aspects of life. The global financial system \ndepicted relative resilience in 2020 despite the ongoing pandemic. \n2. In response to the attendant challenges of the pandemic, governments and \ncentral banks across the globe have implemented various measures to mitigate \nthe impact of the pandemic on global financial stability. These measures, which \ninclude accommodative monetary policies and social safety nets, reduced the \nimpact of the pandemic on the global economy. This resulted in a global \neconomic contraction of 3.3% compared to an initial projection of 4.4% (World \nEconomic Outlook, March 2021). \n3. Sub-Saharan Africa was not spared from the disruptive effects of the Covid-19 \npandemic, with output contracting by 2.6% in 2020. \n4. Notwithstanding the heightening inherent risks arising from the Covid-19 \npandemic and other macroeconomic factors, the Zimbabwean banking sector \nended the year 2020 with adequate capital, satisfactory asset portfolios and \nsustained profitability. \n5. In order to mitigate the impact of the pandemic, the Bank reduced the Statutory \nReserve Ratio from 5% to 4.5%, reduced the Bank’s Policy rate from 35% to \n25%, and relaxed the single borrower limit from 25% to 35%, among other \nmeasures. \n6. The banking sector maintained adequate capitalisation while liquidity buffers \nin the sector also positively impacted on financial stability. The revised \ncapitalisation requirements effective in December 2021 are expected to build \ngreater loss absorbance capacity in the banking sector. \n7. The insurance and pensions industry coped satisfactorily to shocks as \nevidenced by high compliance with minimum capital requirements in the sector \nin 2020. \n \n7 \n \n8. The capital markets ended the year on a positive growth momentum on the \nback of improving economic fundamentals. \n9. During the review period, significant efforts in the financial sector were geared \ntowards promoting and accelerating digital financial services and building \nfinancial resilience. \n10. The Bank is continuing to enhance financial infrastructure in order to \nstrengthen credit risk management and promote inclusive access to credit. The \noperationalization of the Collateral Registry is expected before the end of 2021. \n11. In line with developing trends, financial institutions are expected to integrate \nEnvironmental, Social and Governance (ESG) factors, such as climate change, \ninto their investment, lending and finance decisions. \n12. The Bank has registered significant progress in the adoption of sustainability \nstandards in the banking sector under the Sustainability Standards and \nCertification Initiative (SSCI). Promoting the existence of strong, dynamic and \nresilient financial institutions is critical in ensuring sustainable economic \ngrowth and development. \n13. The pandemic has accelerated the adoption of digital financial services which \nhave supported the conduct of business transactions by the real economy. This \nhas resulted in digital payment transactions in the economy accounting for the \nbulk of payments. Relevant stakeholders are urged to ensure higher levels of \ndigital financial literacy in the economy. \n14. The financial sector regulatory authorities will continue to implement financial \nstability enhancements by embracing international standards that promote \nfinancial stability. \n15. In the outlook, the expected economic recovery as well as price and exchange \nrate stability in 2021 are expected to impact positively on financial stability. \n16. The above measures, and the various initiatives in the other financial sector \nsegments, coupled with ongoing improvement both in capabilities and tools \nfor financial stability assessment, will ensure that the financial sector \ncontinues to play its role of mobilising savings, providing credit in support of \n \n8 \n \nproduction, risk mitigation, efficient allocation of resources and facilitating \ndelivery of products and services. \n17. In conclusion, I would like to take this opportunity to thank all stakeholders \nand in particular our fellow financial sector regulators for their continued \ncontribution to the maintenance of financial stability in Zimbabwe. \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n9 \n \n1. FINANCIAL STABILITY RISKS \n \n1.1 The Covid-19 pandemic posed significant risk to financial stability in 2020 \nas governments across the globe imposed lockdown measures in attempts \nto curb the spread of the virus with severe ramifications on economic \nactivity and financial conditions. The most affected sectors were mainly \nthose that are contact-intensive such as tourism. \n1.2 As a consequence, the global economy is estimated to have contracted by \n3.3% in 2020 (World Economic Outlook, April 2021) as shown in Figure 1 \nbelow. \nFigure 1: Global Economic Growth (%) \n \nSource: World Economic Outlook (January 2021) \n \nFiscal and Monetary Policy Interventions \n1.3 The full extent of knock-on effects of the pandemic on the global financial \nmarkets was mitigated by policy responses from governments and central \nbanks around the world. Globally, central bank relief measures included \nlowering of interest rates and provision of liquidity assistance to the \nbanking sector, whilst fiscal authorities implemented stimulus packages in \nthe form of cash hand-outs, tax holidays and debt guarantees; strengthened \nhealth care systems; and emergency food distribution. These policies \n-6\n-4\n-2\n0\n2\n4\n6\n8\n2015\n2016\n2017\n2018\n2019\n2020\n2021\n2022\nGlobal\nAdvanced\nEMDEs\nSub-Saharan\n \n10 \n \nsupported the flow of credit to the real economy and reduced the economic \ndecline. \n1.4 During the second half of 2020, global production processes began to adapt \nto the new operating environment and the policy interventions implemented \nbegan to bear fruit. This saw global economic activity recovering and \ninvestor confidence increasing, particularly towards the end of 2020. \n1.5 In addition, the development and rollout of Covid-19 vaccines from late \n2020 and accommodative policy measures are expected to drive global \neconomic recovery in 2021 and maintain financial stability. \n1.6 For some Sub-Saharan African countries that were facing constrained fiscal \nspace, the pandemic and its containment measures worsened the situation. \nThe World Bank reported that in 2020, government debt in the region \nincreased to 70% of GDP from 57% at the end of 2019. \n1.7 Economic performance in Sub-Saharan Africa contracted by 2.0% in 2020. \nThe region is, however, projected to grow by 3.4% in 2021 and 4% in 2022 \non the back of re-opening of the economies. Underlying structural \nconstraints, such as power-supply shortages, as well as delays in the Covid-\n19 vaccine rollout may, however, affect the attainment of the projected \ngrowth. \n1.8 Variations in economic structures in the region will also result in an uneven \nrecovery, with well diversified economies and those that are less fiscally \nconstrained registering higher growth rates. Debt sustainability concerns \nmay require fiscal consolidation, which, if prematurely implemented, is \nlikely to further soften the projected recovery. \n1.9 The existence of a sovereign-bank nexus means that vulnerabilities that \ncould arise due to constrained fiscal positions may be transmitted to the \nbanking sector. This poses risks to financial stability in fiscally constrained \nSub-Saharan African countries in the outlook period. \n \n11 \n \n1.10 Relief measures in Zimbabwe, which included fiscal allocation of a \nstimulus package for productive sectors, monthly allowances to vulnerable \nhouseholds, extension of the deadline for compliance with the revised \nminimum capital levels from 31 December 2020 to 31 December 2021, as \nwell as downward review of statutory reserve requirements from 5% to \n2.5%, mitigated the Covid-19 pandemic shock. \n1.11 The easing of reserve requirements enabled banks to increase credit to the \nproductive sectors of the economy, while the liquidity assistance provided \nmuch needed relief to ailing industries and restless households. \nExpected Economic Rebound \n1.12 Against the background of fiscal and central bank stimuli, as well as vaccine \nroll-outs, global economic growth is expected to rise to 6% in 2021 and \n4.4% in 2022. Positive economic growth is expected to increase corporate \nand household incomes and improve debt servicing capacity of borrowers \nthereby decreasing credit risk, leading to stronger banking sector balance \nsheets. \n1.13 The projected recovery in the Zimbabwean economy (7.4% in 2021), which \nis expected to be driven by strong recovery in agriculture, mining, \nelectricity, construction, transport and communication as well as finance \nand insurance, should lower financial stability risks [Fig 2]. The economic \nrecovery is also expected to result in formal employment creation and a rise \nin incomes. \n1.14 Higher household incomes are expected to increase the demand for \nfinancial services boosting the sector’s performance and stability in 2021. \nConsiderable uncertainty which may impede the attainment of the projected \nglobal economic growth arising from the infections waves occurring across \nthe world as well as emergence of new variants of the Covid-19 virus that \n \n12 \n \nmay militate against the efficacy of the currently available vaccines, \nhowever, persist. \nFigure 2: Zimbabwe GDP Growth (%) \n \n \nSource: ZIMSTAT-MOFAD (2020) \n \n1.15 Further, the rate of availability and efficacy of the vaccines in different \nparts of the world will probably impact on production value chains thereby \nleading to an uneven economic recovery pattern across the globe. An \naccommodative policy environment is expected to play a crucial role in \nsupporting economic activity and mitigating against risks to the recovery. \nDomestic Financial Stability Risks \n1.16 In Zimbabwe, the pandemic came at a time when the country was also \ndealing with climate shocks in the form of prolonged droughts and cyclonic \nrainfall. The authorities implemented policies that were targeted at fostering \nproductive capacity, as well as price and exchange rate stability. \n \na. Exchange Rate Shocks \n1.17 Foreign exchange related shocks, which included price volatility, were \nmitigated by the introduction of a foreign currency auction system on 23 \nJune 2020, which resulted in notable stabilisation of the Zimbabwe dollar \nexchange rate in the third quarter of the year. \n1.8\n0.8\n4.8\n3.4\n-6.0\n-4.1\n7.4\n-8\n-6\n-4\n-2\n0\n2\n4\n6\n8\n10\n2015\n2016\n2017\n2018\n2019\n2020 est\n2021 proj\nGDP Growth (%)\n \n13 \n \n1.18 The exchange rate depreciated from an average of ZW$32.35/US$1 in June \n2020 until it stabilised as from August 2020 and remained relatively stable \nin the range of ZW$81/US$1 to ZW$82/US$1 as at 31 December 2020. \nExchange rate stability is expected to be sustained in 2021 largely due to \nthe measures that the monetary authorities have taken to curb speculative \nand rent seeking behaviour in the foreign exchange market. Risks to \nfinancial stability arising from exchange rate volatility are, therefore, \nexpected to be low in the outlook period as shown in Figure 3 below. \n \nFigure 3 : Exchange Rate Developments (ZW$/US$) \n \nSource: RBZ (2021) \n \nb. Inflation Risk \n1.19 Inflation risk abated in 2020 as reflected by the decline in annual inflation \nfrom 521.2% in 2019 to 348.6% by end of 2020. Fiscal consolidation, \ncoupled with monetary stabilization and monetary targeting framework \nmeasures have resulted in notable stability in the pricing of goods and \nservices, particularly during the last quarter of 2020. \n1.20 In 2021, price stability is expected to be maintained on the back of \ncontinued foreign exchange stability as authorities continue to rein in \n55\n60\n65\n70\n75\n80\n85\n18-Jun-20\n8-Jul-20\n28-Jul-20\n17-Aug-20\n6-Sep-20\n26-Sep-20\n16-Oct-20\n5-Nov-20\n25-Nov-20\n15-Dec-20\n4-Jan-21\n \n14 \n \nspeculative behaviour. Inflation is projected to decline in the outlook \nperiod. \n1.21 Lower inflation [Fig 4] will provide the financial sector with a more \nenabling operating environment which facilitates planning and appropriate \npricing of financial products and services. \n \nFigure 4: Annual Inflation (%) \n \nSource: ZIMSTAT (2021) \n \nMonetary Developments \n1.22 Broad money supply stood at ZW$204.92 billion as at December 2020, \ncompared to ZW$153.84 billion recorded as at 30 September 2020. The \ngrowth reflected expansion in local currency transferable deposits, 68.66%; \ntime deposits, 42.84%; negotiable certificates of deposits (NCDs), 32.50%; \nforeign currency deposits, 12.51%; and currency in circulation, 13.08%. \n1.23 As at 31 December 2020, foreign currency deposits amounting to \nZW$103.73 billion, accounted for 51% of total deposits, while local \ncurrency deposits and currency in circulation co-accounted for the balance \nof the money stock (M3). \n0\n100\n200\n300\n400\n500\n600\n700\n800\n900\n2018:01\n2018:02\n2018:03\n2018:04\n2018:05\n2018:06\n2018:07\n2018:08\n2018:09\n2018:10\n2018:11\n2018:12\n2019:01\n2019:02\n2019:03\n2019:04\n2019:05\n2019:06\n2019:07\n2019:08\n2019:09\n2019:10\n2019:11\n2019:12\n2020:01\n2020:02\n2020:03\n2020:04\n2020:05\n2020:06\n2020:07\n2020:08\n2020:09\n2020:10\n2020:11\n2020:12\n%\n \n15 \n \n1.24 The local currency deposits, transferrable or demand deposits amounted to \nZW$88.66 billion (26.64%); time deposits, ZW$9.91 billion (2.01%); and \nnegotiable certificates of deposits, ZW$1.44 billion (0.59%). Notes and \ncoin in circulation stood at ZW$1.07 billion, as at end December 2020. The \nongoing implementation of the monetary targeting framework is expected \nto contribute to price stability which is key to maintaining financial \nstability. \n1.25 Nominal lending rates quoted by banks ranged between 5% and 65%, as at \n31 December 2020. Time deposit rates for 60-day and 90-day tenures \nregistered maximum averages of 10.33% and 9.46%, from 7.12% and \n7.70% recorded in September 2020, respectively. Average maximum \nsavings deposit rates, however, decreased from 5.19% to 4.69%, during the \nperiod under review. \n1.26 The ongoing implementation of the monetary targeting framework is \nexpected to contribute to price stability which is key to maintaining \nfinancial stability. \nMacroeconomic Environment Heatmap \n1.27 The overall risks to financial stability arising from the macroeconomic \nenvironment for the review period were considered moderate. One major \nrisk to economic activity that may potentially affect financial stability \nrelates to uncertainties on the efficacy of the Covid-19 vaccines. The \nstabilising effects of both the fiscal and monetary policies will promote the \nattainment of the economic growth rates that are envisaged in the National \nDevelopment Strategy 1 (NDS1). A Heat map indicating this position is \nshown in Table 1 below. \n \n \n \n \n16 \n \n Table 1: Macroeconomic Environment Heat Map \n \n2017 \n2018 \n2019 \n2020 est \n2021proj \nEconomic Activity \n \n \n \n \n \nSovereign Risk \n \n \n \n \n \nInflation \n \n \n \n \n \nExchange Rate \n \n \n \n \nGlobal Economic Activity \n \n \n \n \n \nOverall Risk \n \n \n \n \n \n \n \n \n \n \n \n \nLess Risk \nVery Low \nLow \nModerate \nHigh \nVery High \nExtreme \nMore Risk \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n17 \n \n \n2. \nBANKING SECTOR SOUNDNESS \n \n2.1 The banking sector reported adequate levels of capitalisation, satisfactory \nasset quality, earnings and liquidity for the period ending December 2020. \n2.2 Notwithstanding the heightening of inherent risks mainly arising from the \nCovid-19 pandemic, the sector depicted resilience. Banks have adjusted \nrelatively well to the Covid-19 induced environment as shown by the \nbanking sector soundness1 index below: \nFigure 5: Banking Sector Soundness Index and Sub-Indices \n \nSource: RBZ (2021) \n2.3 The Banking Sector Soundness Index (BSI) indicates that as at December \n2020, there was an overall reduction in risks posed to the banking sector on \nthe back of a decline in risks posed to asset quality and capitalisation. \nHowever, there were notable increases in risks to sensitivity to market risk, \nearnings and liquidity. A detailed assessment of the various components is \ncontained in the sections below. \n \n1 The derivation of the Banking Sector Soundness Index was presented in the June 2019 Financial Stability \nReport and is currently based on commercial banks data. \n0.0\n0.1\n0.2\n0.3\n0.4\n0.5\n0.6\n0.7\n0.8\nDec-13\nJun-14\nDec-14\nJun-15\nDec-15\nJun-16\nDec-16\nJun-17\nDec-17\nJun-18\nDec-18\nJun-19\nDec-19\nJun-20\nDec-20\n0\n0.05\n0.1\n0.15\n0.2\n0.25\nSep-13\nMay-14\nJan-15\nSep-15\nMay-16\nJan-17\nSep-17\nMay-18\nJan-19\nSep-19\nMay-20\nCapital Adequacy\nAsset quality\nEarnings and profitability\nLiquidity\nSensitivity to market risk\n \n18 \n \n2.4 The performance of the five systemically important banking institutions (D-\nSIBs) as at December 2020 was satisfactory. All the D-SIBs were profitable \nand their profits accounted for 48.1% of total banking sector profits. D-SIBs \nheld 71.57% of total deposits and housed 75.53% of banking sector issued \nloans. \n \n \nCapitalisation \n2.5 The sector’s net capital base increased five-fold, to ZW$53.18 billion as at \n31 December 2020. The capital adequacy ratio (CAR) which represents \n \nThe BSI is mainly based on five CAMELS components, namely: \ni. \nCapital Adequacy; \nii. \nAsset Quality; \niii. \nEarnings and Profitability; \niv. \nLiquidity; and \nv. \nSensitivity to Market risk. \nThe data used in the BSI for Zimbabwe is compiled from Financial Soundness Indicators (FSIs) that are \navailable on a quarterly basis (currently based on commercial banks data). These are then transformed using \nempirical normalization to fit the data within the range of 0 to 1. The following equation is used to normalize \nthe ratios: \n𝐼𝑖 =\n𝑋𝑖−𝑋𝑚𝑖𝑛\n𝑋𝑚𝑎𝑥−𝑋𝑚𝑖𝑛\n \nWhere: \nIi is the sub-index value at point i \nXi is each data point i \nXMin is the minima among all the data points \nXMax is the maxima among all the data points \nXi, 0 to 1 is the data point i normalized between 0 and 1 \nBOX 1: BANKING SECTOR SOUNDNESS INDEX (BSI) \n \n19 \n \nextent of cushion against unexpected losses, also rose from 32.57% in \nDecember 2019 to 34.62% as shown below. \nFigure 6 : Banking Sector Net Capital Base (ZW$ Millions) and CAR (%) \n \nSource: RBZ (2021) \n \nEarnings Performance \n2.6 All banking institutions recorded profits for the year ended 31 December \n2020 with aggregate sector profits amounting to ZW$34.24 billion. The \ncost-to-income ratio, however, increased from 59.05% as at December 2019 \nto 71.97% as at December 2020 mainly attributable to Covid-19 related \nexpenses. Earnings are expected to remain on an upward trend as the sector \ncontinues to adjust to new operating conditions through effective risk \nmanagement systems and digital banking models. The contribution of non-\ninterest income to total banking sector income has continued to strengthen \nover the past few years [Fig 7] reflecting increasing diversification of \nincome sources. \n \n \n \n0.0\n1.0\n2.0\n3.0\n4.0\n5.0\n6.0\n0.00%\n5.00%\n10.00%\n15.00%\n20.00%\n25.00%\n30.00%\n35.00%\n40.00%\nMar/16\nJun/16\nSep/16\nDec/16\nMar/17\nJun/17\nSep/17\nDec/17\nMar/18\nJun/18\nSep/18\nDec/18\nMar/19\nJun/19\nSep/19\nDec/19\nMar/20\nJun/20\nSep/20\nDec/20\nCapital $ Millions\nCAR (%)\nNet Capital\nCAR\n \n20 \n \n \n \nFigure 7 : Banking Sector Income Components \n \nSource: RBZ (2021) \n2.7 Table 2 presents the banking sector’s major risks at an aggregate level and \nassessment of the adequacy of risk management systems across the market \nas at 31 December 2020. \nTable 2:Banking Sector Risk Matrix as at 31 December 2020 \nType of Risk \nLevel \nof \nInherent Risk \nAdequacy of Risk \nManagement \nSystems \nOverall \nComposite \nRisk \nDirection of Overall \nComposite Risk \nCredit \nModerate \nAcceptable \nModerate \nStable \nLiquidity \nModerate \nAcceptable \nModerate \nStable \nForeign Exchange \nModerate \nAcceptable \nModerate \nStable \nInterest Rate \nModerate \nAcceptable \nModerate \nStable \nStrategic Risk \nModerate \nAcceptable \n Moderate \nStable \nCyber Risk \nModerate \nAcceptable \nModerate \nIncreasing \nOperational Risk \nHigh \nAcceptable \nModerate \nIncreasing \nOverall \nModerate \nAcceptable \nModerate \nStable \n \n \n \n \n -\n 10,000.00\n 20,000.00\n 30,000.00\n 40,000.00\n 50,000.00\n2014\n2015\n2016\n2017\n2018\n2019\n2020\n0%\n20%\n40%\n60%\n80%\n100%\nTotal Interest income\nTotal Non-interest income\nTotal Income\n \n21 \n \nCredit Risk \n2.8 Asset quality remained satisfactory with a non-performing loans (NPLs) to \ntotal loans ratio of 0.31% as at 31 December 2020, down from 1.75% as at \n31 December 2019. \n2.9 The trend in the NPL ratio is shown in Figure 8 below. The sector also \nimplemented Covid-19 related relief measures on asset quality, and \nenhanced credit risk management systems, particularly in light of IFRS 9 \nExpected Credit Losses (ECLs) classification and measurement \nmethodologies. \nFigure 8: Trend in NPL Ratio \n \nSource: RBZ, 2021 \n2.10 Credit risk stress test results showed that the banking sector was largely \nsusceptible to asset quality deterioration, at aggregate level. The results \nindicate that when subjected to a minor credit shock of migration of NPLs \nby 14%, the aggregate banking sector NPLs ratio would rise from 0.31% to \n14.31%. Notwithstanding such a shock, the banking sector would remain \nadequately capitalised. Further, banks are holding sufficient provisions to \nmeet any losses. A major shock of increase in NPLs by 42%, whose \n0%\n1%\n2%\n3%\n4%\n5%\n6%\n7%\n8%\nJun-18\nDec-18\nJun-19\nDec-19\nJun-20\nDec-20\n \n22 \n \noccurrence is very remote, may result in the NPLs ratio increasing to \n42.31%. Figure 9 summarises the stress test results. \n \nFigure 9: Credit Stress Test: Increase in NPLs \n \nSource: RBZ (2021) \n2.11 The credit concentration stress test, which captures the impact on a bank’s \ncapital of a default by its top borrowers, indicated that only three banks \nwere vulnerable to a minor shock, which is the default of a bank’s largest \nborrower. One more bank was vulnerable to moderate and major shocks \nrepresenting the default of a bank’s top three and five borrowers, \nrespectively as shown on Figure 10 below. \n \nFigure 10: Default of top five largest borrowers \n \nSource: RBZ (2021) \nMinor \n(3 Bank)\nModerate \n(4 Banks)\nMajor \n(6 Banks) \nNo. of Banks with CAR < 12%\nMinor\n(3 Banks)\nModerate (4 Banks)\nMajor\n(4 Banks)\nNo. of Banks with CAR<12%\n \n23 \n \n2.12 Credit concentration is sufficiently mitigated on bank balance sheets \nthrough liquidity contingency plans and other capital mobilisation \nstrategies. \nLiquidity Risk \n2.13 Most liquidity indicators showed relative stability between December 2019 \nand December 2020. The Banking Sector Soundness Index, however, \ndepicts a marginal increase in risks to liquidity reflected in a decline in the \nliquid assets to short-term liabilities ratio for commercial banks over the \nperiod under review. \n2.14 Liquidity risk is expected to remain low due to the envisaged improvement \nin the operating environment. Banks tend to reduce the transformation of \ndeposits into loans as part of a cautious approach to lending in order to \ncontain credit risk and liquidity risk. \n2.15 The liquidity stress test results showed that the banking sector is resilient \nto liquidity shocks as shown in Figure 11 below. \nFigure 11: Liquidity Stress Test Results \n \nSource: RBZ (2021) \n2.16 The Reserve Bank continuously monitors the level of available liquid assets \nagainst liquidity demanding liabilities within banks using the Prudential \nLiquidity Ratio (PLR). During the period under review all banks had a PLR \nabove the regulatory minimum of 30% and the banking sector average was \nMinor\n(1 Bank)\nModerate\n(3 Banks)\nMajor \n(10 Banks)\nNo. of Iliquid Banks by Day 5\n \n24 \n \n73.06%. Figure 12 below shows the PLR trend for the period March 2016 \nto December 2020. \nFigure 12: Trend in the Prudential Liquidity Ratio \n \nSource: RBZ (2021) \nMarket Risk \na. Interest Rate Risk \n2.17 The interest rate risk exposure in the banking sector remained moderate, as \nthe balance sheets are dominated by banking book items and limited trading \nactivities. In addition, sources of funds for banks are predominantly retail \ndeposits which are relatively less interest rate sensitive, while re-pricing \nassets are mainly loans and advances and treasury bills which have long \nrepricing cycles. \n2.18 As at 31 December 2020 the banking sector had an overall asset sensitive \nbook, with a cumulative re-pricing gap of ZW$13.03 billion in the 1-365 \ndays’ time bucket. The banking sector showed resilience to interest rate \nrisk shocks, with only three banking institutions being vulnerable to a major \nshock as shown on Figure 13 below. \n \n \n40\n45\n50\n55\n60\n65\n70\n75\n80\n1/3/2016\n1/6/2016\n1/9/2016\n1/12/2016\n1/3/2017\n1/6/2017\n1/9/2017\n1/12/2017\n1/3/2018\n1/6/2018\n1/9/2018\n1/12/2018\n1/3/2019\n1/6/2019\n1/9/2019\n1/12/2019\n1/3/2020\n1/6/2020\n1/9/2020\n1/12/2020\n(%)\n \n25 \n \nFigure 13: Interest Rate Risk Shocks \n \nSource: RBZ (2021) \n2.19 Interest rate risk is expected to remain moderate largely due to minimal \nexposure to trading in interest rate sensitive instruments. \n \nb. Foreign Exchange Risk \n2.20 Foreign exchange risk is expected to continue to be moderate in 2021 \nlargely due to the stability in the foreign exchange rate following the \nintroduction of the Foreign Exchange Auction System during the review \nperiod. The Banking Sector Soundness Index, however, showed an increase \nin risks to sensitivity to market risk attributable to the depreciation of the \nlocal currency against major currencies over the period under review. \n2.21 The banking sector had a negative net open position which was attributed \nto foreign obligations such as payment of ICT systems licences, acquisition \nof ICT infrastructure and legacy debts. The foreign currency assets \nconstituted 25.65% of the total assets whilst foreign liabilities constituted \n53% of the total liabilities. \n2.22 Stress test results show local currency volatility may have a marginal \nimpact on the banking sector capitalisation as shown on Figure 14 below. \n \nModerate\n(1 Bank)\nMajor \n(3 Banks)\nNo. of Banks with CAR<12%\n \n26 \n \nFigure 14: Foreign Exchange Risk Stress Test Results \n \nSource: RBZ (2021) \n \nStrategic Risk \n2.23 Banking institutions have robust processes to identify, quantify and mitigate \nrisks inherent in their strategic execution. Institutions activated and \nreviewed their business continuity strategies and align them with the Covid-\n19 pandemic operating environment. \n2.24 Strategic risk in the sector is also heightened by competition from fintech \ncompanies, which have the scope to disrupt the traditional banking business \nmodels by offering cheaper and more consumer-focused financial products. \nHowever, banks have since adopted strategies to collaborate with financial \ntechnology companies (fintechs) so that they can leverage on new \ntechnologies. Fintechs on the other hand would benefit from tapping into \nthe existing customer bases of traditional banks. \n \nCyber Risk \n2.25 Increased usage of electronic payments and virtual office platforms exposed \nthe banking sector to elevated cyber risks, in the form of hacking, fraudulent \ntransactions and identity theft by third parties. \nMinor\n(4 Banks)\nModerate (4 Banks)\nMajor\n(5 Banks)\nNo. of Banks with CAR<12%\n \n27 \n \n2.26 In the meantime, banks have upgraded their ICT security systems to protect \nthemselves and their clients, through enhanced security measures such as \ntwo-step authentication, among others. \n2.27 A number of banks have instituted corresponding consumer education \nprogrammes on the risks of transacting online in order to mitigate the \nheightened level of cyber risks. \n \nOperational Risk \n2.28 The banking sector witnessed numerous shifts in focus and reprioritization \nof operational and conduct risks in 2020 as institutions came to terms with \nmanaging temporary closure of branches, self-isolation of staff, dispersed \nworkforces and managing working-from- home controls. \n2.29 During the year ended 31 December 2020, the risk management systems \naround the sector, operational procedures, controls and policies were \nlargely satisafactory. \n2.30 The Bank will continue to monitor the adequacy of banks’ contingency \nplans as well as other developments that may affect the operations of banks \nwith a view to give adequate guidance to the market to maintain sector \nstability. \n \n \n \n \n \n \n \n \n28 \n \n3. \nCAPITAL MARKETS \n3.1 The capital markets continued to play a critical role in economic growth \nand development through providing infrastructural requirements to access \nlong term financing to the real sector. \n3.2 The capital markets exhibited relative stability during the course of 2020 \nagainst the background of improving economic fundamentals and the \nintroduction of the Foreign Currency Auction System. The general \nvolatility on the stock exchange experienced during the first half of 2020 \nwas largely attributable to the initial uncertainties surrounding exchange \nrate policies introduced to neutralise foreign exchange risk. \n3.3 As at December 2020, The number of licensed institutions under the \nsupervision of the Securities and Exchange Commission of Zimbabwe \n(SECZ) had increased compared to December 2019 as indicated in Table 3 \nbelow \nTable 3: Regulated institutions in the Capital Markets \n \n \n \n \n \nSource: Securities and Exchange Commission of Zimbabwe (2021) \n \n3.4 In an endeavour to increase investment diversity for both local and foreign \ninvestors as well as improve the foreign direct investment into the market, \nSECZ oversaw the establishment of the Victoria Falls Stock Exchange \n(VFEX) by the Zimbabwe Stock Exchange (ZSE). \nType of institution \n2020 \n2019 \nSecurities Exchanges \n3 \n2 \nCentral Securities Depositories \n1 \n1 \nSecurities Dealing (Stockbroking) firms \n18 \n16 \nSecurities Investment (Asset) Management firms \n22 \n16 \nSecurities Custodial firms \n5 \n5 \nSecurities Transfer Secretaries firms \n3 \n3 \nSecurities Trustee firms \n3 \n2 \nSecurities Advisory firms \n44 \n31 \n \n29 \n \nCondition and Performance of Securities Markets \n3.5 On the equity market, the All Share and Top Ten indices recorded annual \ngains of 1,046% and 733%, to end the year at 2,636.47 points and 1,671.47 \npoints, respectively. In line with the stock market rebound, high trading \nvolumes and values on negotiated trades were witnessed on several counters \nwhich included ZB, CBZ, Bindura and Zimre Holdings. Consequently, \nequity turnover grew by 754% whilst trading volumes increased by 64% on \nan annual basis. \n3.6 The performance of the two securities exchanges as at December 2020 is \nshown in the table below: \nTable 4: Securities Exchanges Performance \n \n2020 \nZimbabwe Stock Exchange \nZW$ \nZSE Turnover \n17,321,473,923 \nTraded Volume \n 3,735,809,255 \nMarket Capitalisation \n317,879,307,047 \nAll Share Index \n2,636.34 \nTop 10 Index \n1,671.47 \nNumber of Listed Companies \n51 \n \n \nFinancial Securities Exchange \n2020 \nATP Turnover \n57,251,889 \nATP Traded Volume \n1,595,785 \nATP Market Capitalisation \n2,199,810,527 \nNumber of listed Companies \n1 \nSource: Securities and Exchange Commission of Zimbabwe (2021) \n \n3.7 The trend in turnover and volume developments during period under review \nis reflected in the figure below. \n \n \n \n \n \n30 \n \nFigure 15: Zimbabwe Stock Exchange Volume/ Turnover \n \n \nSource: Zimbabwe Stock Exchange (2021) \n3.8 \n The firming up of the equities indices resulted in the market capitalization \nincreasing by 968% to ZW$317.88 billion as at December 2020, \nnotwithstanding a decrease in the number of listed entities by 15%. The \ntable below summarises the overall performance in the Equities market \nfrom 2018. \nTable 5: Equity Markets Performance Summary \n Zimbabwe Stock Exchange \n2020 (ZW$) \n2019 (ZW$) \n2018(ZW$) \n% Change \nZSE Turnover \n17,321,473,923 \n2,028,580,517 \n926,309,643 \n754% \nTraded Volume \n 3,735,809,255 \n2,283,747,926 \n2,517,356,999 \n64% \nMarket Capitalisation \n317,879,307,047 \n29,767,094,449 \n19,424,406,159 \n968% \nAll Share Index \n2,636.34 \n230.08 \n146.24 \n1046% \nTop 10 Index \n1,671.47 \n200.56 \n - \n733% \nNo of Listed Companies \n51 \n60 \n64 \n-15% \nSource: Zimbabwe Stock Exchange (2021) \n \n3.9 The suspension of dual listed companies on the ZSE on 26 June 2020 and \nthe launch of the Victoria Falls Stock Exchange (VFEX) on 23 October \n2020 reshaped the composition of the indices. As at the end of 2020, only \n -\n 500\n 1,000\n 1,500\n 2,000\n 2,500\n 3,000\n 3,500\n 4,000\n 4,500\n 5,000\n -\n 200\n 400\n 600\n 800\n 1,000\n 1,200\nFeb-15\nApr-15\nJun-15\nAug-15\nOct-15\nDec-15\nFeb-16\nApr-16\nJun-16\nAug-16\nOct-16\nDec-16\nFeb-17\nApr-17\nJun-17\nAug-17\nOct-17\nDec-17\nFeb-18\nApr-18\nJun-18\nAug-18\nOct-18\nDec-18\nFeb-19\nApr-19\nJun-19\nAug-19\nOct-19\nDec-19\nFeb-20\nApr-20\nJun-20\nAug-20\nOct-20\nDec-20\nMillions\nVolume\nMillions\nZSE Trading Turnover/ Volume \n Volume\n Turnover\n \n31 \n \nSeedco International had listed on the VFEX and the other two counters \nnamely Old Mutual and PPC remained temporarily suspended from trading. \n3.10 The top ten counters’ contribution to the total market capitalisation declined \nfrom 73.4% in 2019 to 68.5% in 2020. The figure below summarises the \ncomposition of the top ten counters on the ZSE between 2019 and 2020. \nFigure 16: Top Ten Counters to Market Capitalisation \n \nSource: Zimbabwe Stock Exchange (2021) \na) ZSE All Share Index (ALSI) \n3.11 The ALSI volatility, which was calculated using Industrial Indices from \nJanuary 2018 to December 2020, was estimated at 5.461% as of 31 \nDecember 2020, using a smoothing constant of 0.97. The major spike on \nreturns in April 2020 was attributed to socio-economic changes which saw \nthe equity market prices surge in response to rising demand as investors \nsought to hedge against inflation. Naturally, uncertainties in the \nmacroeconomic environment continued to inform the performance of the \nmarket. Trends in the ZSE ALSI are shown in the figure below. \n \n \n \n \nTop Ten Market Cap %\nDELTA\nCASSAVA\nECONET\nOLD MUTUAL\nINNSCOR\nPADENGA\nBAT\nSEEDCO INTL\nSIMBISA\nOK ZIM\n2019 \n(73.41%)\nCBZ\nDELTA\nECONET\nINNSCOR\nHIPPO\nCASSAVA\nPADENGA\nBAT\nOK ZIM\nFBC\n2020 \n(68.53%)\n \n32 \n \nFigure 17: All Share Index EWMA Relative Volatility (January 2018 –December 2020) \n \nSource: Zimbabwe Stock Exchange (2021) \n3.12 The FINSEC Alternative Trading Platform (ATP) market capitalisation \nclosed at $2.19 billion in December 2020, reflecting a significant growth of \n121% from ZW$996 million in 2019. Turnover grew by 15% (ZW$57.5 \nmillion) while the volume of shares traded fell by 84% to 1.6 million from \n9.8 million in the previous year. Table 6 below summarises the overall \nperformance of the FINSEC ATP. \nTable 6: FINSEC ATP Performance Summary \nFinancial Securities Exchange \n2020 \n2019 \n2018 \n% change \nATP Turnover (ZW$) \n57,251,889 \n49,907,564 \n5,118,548 \n15% \nATP Traded Volume \n1,595,785 \n9,886,188 \n1,682,086 \n-84% \nATP Market Capitalisation (ZW$) \n2,199,810,527 \n996,140,616 \n410,908,004 \n121% \nNumber of listed Companies \n1 \n1 \n1 \n \nSource: Securities and Exchanges Commission (2021) \nb) Investment Management \n3.13 Funds under Management (FUM) for the industry as at 31 December 2020 \nstood at ZW$156.5 billion representing an increase of 9.40 times from \nZW$15.05 billion reported as at 31 December 2019. The increase was \nmainly attributed to properties asset revaluations following the conversion \nof United States Dollar (US$) denominated assets and equities. \nSep-17\nApr-18\nOct-18\nMay-19\nDec-19\nJun-20\nJan-21\nJul-21-20.000%\n0.000%\n20.000%\n40.000%\n60.000%\n80.000%\n100.000%\n0.00\n500.00\n1,000.00\n1,500.00\n2,000.00\n2,500.00\n3,000.00\nJun-17\nDec-17\nJul-18\nFeb-19\nAug-19\nMar-20\nSep-20\nApr-21\nALSI Points\nMoM\nAll Share Index\nAll Share\nReturns ^2\n \n33 \n \nTable 7 : Asset Management Summary (December 2020) \nAsset Management \n2020 \n2019 \n2018 \nChange \nFunds under Management (Total FUM) \n(ZW$) \n156,539,539,068 \n15,050,708,208 \n7,159,044,293 \n940.1% \nCollective Investments Schemes (CIS) (ZW$) \n730,246,168 \n167,023,446 \n168,176,773 \n337.2% \nCIS / Total Market FUM \n0.5% \n1.1% \n2.3% \n-58.0% \nNumber of Players \n 22 \n 19 \n 16 \n15.8% \n**Capital Adequacy Compliance (%) \n72.2% \n77.8% \n93.8% \n-7.1% \n**Firms' Positive Earnings (%) \n89.5% \n100.0% \n62.5% \n-10.5% \n \n \n \n \n \nSource: Zimbabwe Stock Exchange (2021) \n**Data as at 30 September 2020 \n3.14 Meanwhile, the sector’s profitability and capital adequacy ratios declined \nover the review period to 89.5% and 72.2% respectively as a result of the \nrisk adjusted capital framework adopted by the Securities and Exchange \nCommission which takes into account the assets volatility and requisite risk \nexposure. \n3.15 Overall assets under management went up by 337.2% while a decrease of \n58% was recorded for collective investment schemes (CIS) from 1.1% to \n0.5% of the total funds under management. Generally, there is limited asset \ndiversity in assets invested in CIS funds which tends to limit investments \nand permutations. The trend in funds under management over the last few \nyears is shown in Figure 18 below. \n \n \n \n \n \n \n34 \n \nFigure 18: Funds under Management as at 31 December 2020 \n \nSource: Securities and Exchange Commission (2021) \n \nCapital Markets Risks and Risk Management Measures \n3.16 Notwithstanding risks posed by the Covid-19 scourge, the overall \nprofitability of the capital markets in respect of securities dealing firms, \ntransfer secretaries and exchanges slightly improved on the back of growth \non the Zimbabwe Stock Exchange. \n3.17 Securities Market Intermediaries adopted comprehensive measures to \nmitigate the spread of Covid-19 and ensure availability of uninterrupted \nfinancial services. Measures included enhanced usage of technology, \nencouraging customers to use online channels, reassessing business \ncontinuity plans, and enhancing the monitoring frequency of key risk areas \nsuch as credit, capital market and foreign exchange exposures etc. \n3.18 Table 8 below presents a summary of the risks to financial stability arising \nfrom the macroeconomic environment and the capital markets as well as \nvarious mitigatory measures. \n \n-\n20 \n40 \n60 \n80 \n100 \n120 \n140 \n160 \n180 \nBILLIONS\n \n35 \n \nTable 8: Summary of Key Risks to Capital Markets and Risk Mitigation Measures \nTop Risks Identified \nDescription \nLikely Impact \nIncrease in Domestic Inflation \nThe risk of increasing domestic inflation necessitated by \ninformal sector prices linked to parallel markets rates on \nretail and commercial goods. \nMedium \nSlowdown in Domestic Growth \nThe risk of slowed national growth due to the Covid-19 \ninduced restrictions and challenges which may affect the \ngrowth projections and expectations in fulfilling national \nagenda. \nMedium \nVolatility in Property and Equity \nPrices \nThe risk of increasing volatility on the equity and property \nmarkets as investors hedge against inflation and foreign \nexchange movements on the local currency \nMedium \nForeign Exchange Risk \nThe risk of the currency depreciation on the Zimbabwean \ndollar against other currencies in the world and region \nwhich will increase costs of raw materials and increased \ndemand for foreign currency by the local entities. \nMedium \nInterest Rate Risk \nIncreasing interest rate risk fluctuations due to the \ninflationary pressures as instruments reprice over time \nLow \nGeopolitical Risk \nThe risk emanating from political instability within the \ncountry from political and civic rights groups and Islamic \ninsurgents in the region (Mozambique) which directly \naffects foreign direct investments \nMedium \nWidening fiscal deficit \nThe possible risk emanating from fiscal deficit caused by \nthe supplementary budgets induced by Covid-19 stimulus \npackages. \nMedium High \nDeterioration of household \nsavings \nThe risk of deterioration of household savings as the nation \ngrapples with Covid-19 induced restrictions to grow \nbusiness. \nMedium Low \nSlowdown in Corporate Sector \nGrowth \nThe risk emanating from the Covid-19 challenges to grow \nthe domestic corporate sector due to travel and movement \nrestrictions leading to shortages and price increases on \nconsumers \nMedium \n \n 1=Low, 2=Medium Low, 3=Medium, 4=Medium High, 5=High \n \n \n \n \n \n \n \n \n \n \n \n \n 1 \n \n2 \n \n3 \n \n4 \n \n5 \n \n36 \n \n4. \nINSURANCE AND PENSIONS INDUSTRY \n4.1 The insurance and pensions sector continued to positively contribute to \neconomic growth through its mechanism of risk transfer and the \nintermediation role across the economy. \n4.2 The sector remained largely sound and resilient despite the difficult \noperating environment while the outlook period was considered stable. \nInsurance Sector \na) Industry Architecture \n4.3 As at 31 December 2020, the insurance industry was made up of 84 \nregistered players excluding agents as shown in the table below: \nTable 9 : Insurance Sector Infrastructure as at December 2020 \nClass of Business \nNumber of Registered Players \nLife Assurance \n12 \nFuneral Assurance \n8 \nNon-life Insurers \n18 \nNon-life Reinsurers \n4 \nComposite Reinsurers \n4 \nInsurance Brokers \n31 \nReinsurance Brokers \n7 \nTotal \n84 \nSource: Insurance and Pensions Commission (2021) \n \nb) Performance and Financial Condition \n4.4 Despite the challenging economic environment, the industry reported 580% \ngrowth in premium income as shown in the table below: \n \n \n \n \n37 \n \nTable 10 : Insurance Sector Premium Income (ZW$ Thousands) \nClass of Business \n31 Dec 2020 \n31 Dec 2019 \nGrowth \nShort term Insurers \n9, 110, 000 \n1,370, 000 \n565% \nShort term Reinsurers \n5, 300,000 \n664, 900 \n697% \nLife Assurers \n3, 650, 000 \n596, 930 \n 511% \nLife Re-assurers \n87, 530 \n12, 544 \n598% \nFuneral Assurers \n61,110 \n34,560 \n77% \nTotal Gross Premiums \n18, 286, 640 \n2,678,934 \n580% \nSource: Insurance and Pensions Commission (2021) \n \nc) \nIndustry Assets \n4.5 The insurance industry assets and liabilities stood at ZW$49.42 billion and \nZW$20.02 billion respectively as at 31 December 2020 as shown below: \n \nTable 11 : Insurance Industry Assets and Liabilities (ZW$ Thousands) \n \nShort \nTerm \nReinsurers \nLife Assurers \nLife Reassurers \nFuneral \nAssurers \nInsurance \nBrokers \nReinsurance \nBrokers \nTotal \nNon-Current \nAssets \n3,990,880 \n2,796,740 \n28,756,024 \n0 \n779,747 \n17,800 \n9,010 \n36,350,201 \nTechnical \nAssets \n320,110 \n316,620 \n0 \n0 \n0 \n0 \n0 \n636,730 \nCurrent Assets \n4,558,400 \n3,290,000 \n3,843,541 \n641, 269 \n88,151 \n2,330 \n7,910 \n12,431,601 \nTotal \n8,869,390 \n6,403,360 \n32,599,565 \n641, 269 \n867,898 \n20,130 \n16,920 \n49,418,532 \n \n \n \n \n \n \n \n \n \nEquity \n4,202,140 \n3, 224, 502 \n17,025,655 \n2, 153, 743 \n528,209 \n418, 617 \n9,540 \n21,765,544 \nTotal Liabilities \n242,710 \n2, 830, 143 \n15,573,800 \n523, 235 \n339,689 \n514, 660 \n7.380 \n20,024,244 \n \n \n \n \n \n \n \n \n \nRisk Retention \nRatio \n42.81% \n64.02% \n97,95% \n65,75% \n100% \n \n \n \nExpense Ratio \n48.87% \n24.10% \n29,22% \n16,00% \n64.62% \n \n \n \nSource: Insurance and Pensions Commission (2021) \n \nd) \nCapitalisation Levels \n4.6 A total of 74 out of the 84 insurance entities were compliant with the new \nminimum capital requirements as at 31 December 2020, as shown in the \ntable below: \n \n38 \n \nTable 12 : Insurance Sector Minimum Capital Requirements Compliance \n \nNumber of Compliant Entities \nAverage Compliance (%) \nLife Companies \n10 out of 12 \n83% \nLife reassures \n4 out of 4 \n100% \nNon-Life Companies \n18 out of 18 \n100% \nNon-Reinsurers \n4 out of 4 \n100% \nFuneral Assurers \n3 out of 8 \n38% \nInsurance Brokers \n28 out of 31 \n94% \nReinsurance brokers \n7 out of 7 \n100% \nSource: Insurance and Pensions Commission (2021) \n \nPensions Sector \na) \nPensions Industry Infrastructure \n4.7 The number of registered pension funds was 967 with a total of 881 330 \nmembers as at 31 December 2020. Of the registered funds, 592, constituting \nabout 61.2% were active whilst 38.8% were inactive funds. The high \nnumber of inactive funds was largely attributed to viability challenges of \nsponsoring employers which was worsened by the Covid-19 pandemic. \nThe pandemic has seen some funds applying for suspension of contributions \nand paid-up status. \n \nb) Performance and Financial Condition \n4.8 The industry assets were valued at ZW$110.24 billion, having increased in \nnominal terms by 273.06% from ZW$29.55 billion reported as at 31 \nDecember 2019. In real terms, the asset base declined by 24% from US$1.8 \nbillion as at 31 December 2019 to US$1.35 billion as at 31 December 2020. \n4.9 The breakdown of assets by asset class as at 31 December 2020 is shown \nbelow: \n \n39 \n \n Figure 19: Total Assets by Class of Investment as at December 2020 \n \nSource: Insurance and Pensions Commission (2021) \n \n4.10 As shown in the figure above, investment property constituted 47% of the \npensions industry assets, whilst equities were 34%. This is on account of \nthe repricing of these two asset classes which is faster than the other classes. \n4.11 Total income for the 12 months ended 31 December 2020 amounted to \n$79.2 billion. The breakdown of income, expenditure and the resulting \nsurplus for the period is shown in the table below. \n Table 13: Financial performance of the Pensions Industry \nIndicator \n31 December 2020 \n31 December 2019 \nTotal Contributions (ZW$ billions) \n5.2 \n0. 69 \nInvestment Income (ZW$ billions) \n71.54 \n8.7 \nTotal Income (ZW$ billions) \n79.2 \n2.69 \nTotal Benefits Incurred (ZW$ billions) \n3.30 \n9.6 \nTotal Expenditure (ZW$ billions) \n5.0 \n0.56 \nIncome Surplus (Deficit) (ZW$ billions) \n74.20 \n8.99 \nExpenses/Contributions \n32.83% \n26.5% \nExpenses/Total Income \n2.18% \n1.91% \nSource: Insurance and Pensions Commission (2021) \n \n \n40 \n \n4.12 The industry reported a surplus of ZW$74.20 billion for the 12 months \nended 31 December 2020 compared to a surplus of ZW$8.99 billion in the \nsame period in 2019. The surplus was mainly driven by investment income \ntotalling ZW$71.54 billion. Investment income was mainly driven by fair \nvalue gains due to property revaluations and a bull run on the Zimbabwe \nStock Exchange. \n \nRisks to the Insurance and Pensions Sectors \na. Economic Risk \n4.13 Economic risk was considered moderate due to the real growth that was \nrecorded in the sector as a result of the relative stability in the economy. \nDespite the forecasted decreases in Gross Premiums Written due to the \neffects of Covid-19, the insurance industry recorded a nominal positive \ngrowth rate of 586%. \n \nb. Reputational Risk \n4.14 Following the currency reforms implemented in 2019, payment of benefits \nin local currency on contracts that had been made in foreign currency \nheightened the industry’s reputational risk. The expectation of \npolicyholders and pension scheme members was to receive their benefits in \nforeign currency notwithstanding the currency reforms. This further dented \nconfidence in the sector which saw some products becoming irrelevant and \nsome members requesting full commutations of their accumulations. \n4.15 To address the potential loss of value from the 2019 currency reforms, the \nInsurance and Pensions Commission issued a Guideline to the Insurance \nand Pensions Industry on Adjusting Insurance and Pension Values in \nResponse to Currency Reforms which has largely restored public \nconfidence reflected by increasing pension values. \n \n \n41 \n \nc. Market Risk \n4.16 Market risk was considered moderate to high on account of asset-liability \nmismatches due to unavailability of value-preserving short-term investment \nassets which match the liability profiles of insurance companies and \npension funds. For effective asset liability matching, the assets must match \nthe nature, tenure, and currency of the liabilities. Following approval for \ngeneral public to purchase insurance and pension products in foreign \ncurrency using free funds, there is need for asset classes that match the \ncurrency of liabilities. Further, the forex market should be deep and liquid \nenough to absorb the forex premiums and contributions to allow orderly \nexits should the need arise. It is envisaged that the risk will be mitigated \ngoing forward as activity on the Victoria Falls Stock Exchange increases. \n \nd. Operational Risk \n4.17 Operational risk was considered high on account of the threat to business \ncontinuity in the Covid-19 environment. In addition, the increasing Covid-\n19 infection and deaths rates at the end of 2020 had direct impact on claims, \nthreatening viability of some funeral assurers. \n4.18 The extensive usage of digital platforms by both the customers and \nemployers across the sector has increased the level of cyber security threats. \n4.19 Inter-company investments pose a risk to the operations of insurance \ncompanies thus contributing to contagion risk. In the funeral insurance \nsector, there is a direct relationship between the funeral assurance \ncompanies and the funeral service providers. Although the exact figure of \ninter-company exposure is not available for the whole industry, information \nfrom the inspections conducted during the review period reflects that \nintercompany exposure in the insurance industry is low. \n \n \n \n42 \n \ne. Regulatory and Compliance Risk \n4.20 Regulatory and compliance risk was considered low on account of \nimprovements in compliance with the minimum capital requirements \n(MCR) with 87% of all regulated entities being compliant as at 31 \nDecember 2020. \nTable 14: Compliance with Minimum Capital Requirements as at 31 December 2020 \nClass of Business \nMCR \n(ZW$ \nMillions) \nNo. of Entities \nNo. of Compliant \nCo. \n% \nCompliance \nStatus \nInsurance Brokers \n1.5 \n32 \n28 \n88% \nReinsurance Brokers \n1.5 \n7 \n7 \n100% \nFuneral Companies \n62.5 \n8 \n3 \n38% \nShort-term Insurers \n37.5 \n18 \n18 \n100% \nReinsurance \n75 \n8 \n8 \n100% \nLife Assurers \n75 \n12 \n10 \n83% \nMicro-insurers \n4.5 \n2 \n2 \n100% \nAverage Compliance \nlevel \n \n \n \n87% \nSource: Insurance and Pensions Commission (2021) \n \n4.21 Compliance with prescribed asset requirements was, however, low at an \naverage of 3.69% for short-term insurers, 2.43% for life assurers and 6.41 \n% for pension funds against compliance thresholds of 10%, 15% and 20% \nrespectively. The low compliance levels are on account of the adverse \nimpact of inflation on fixed income securities. Insurers and pension funds \nare shunning value eroding assets, which saw investment portfolios skewed \ntowards investment property and listed equity. This is compounded by \nmemories of 2009 loss of value and need for compensation after Justice \nSmith loss of value investigation. \n4.22 The above scenario has led to concentration of investments in few asset \nclasses which impacts the institutions’ portfolio diversification strategies, \nwhile prospects for Government and other issuers of paper to mobilise \nresources from institutional investors become limited. \n \n43 \n \n4.23 To ensure compliance with prescribed asset requirements, the Commission \nhas widened the framework for prescribed assets to include alternative \ninvestments such as private equity. Engagements are also ongoing with the \nindustry and Government in an effort to come up with value preserving \ninstruments which are attractive to the industry. \n \nf. Liquidity Risk \n4.24 Liquidity risk was considered moderate with 46.83% of total assets in \ninvestment property. The concentration of assets in investment property is \nworsened by growth in contribution arrears, suspension in contributions and \nfunds being in paid up status. The risk is, however, unlikely to pose \nsignificant threat to the financial sector stability. \n \ng. Credit Risk \n4.25 Credit risk was considered moderate due to sponsoring employers failing to \npay pension contributions on time and to adhere to agreed payment plans. \n4.26 In the insurance sector, players have experienced significant premium \ndebtors which presents the risk that some companies may fail to realise the \npremiums. Insurers may then fail to honour claims when they fall due as \npremiums remain uncollected thereby eating into reserves and depleting \ntheir insurance pools. \n \n \n \n \n \n44 \n \nTable 15: Insurance and Pensions Sector Risk Matrix \nRisk Type \nRisk Level \nRisk Direction \nEconomic Risk \nModerate \nStable \nOperational Risk \nHigh \nHigh \nRegulatory and Compliance Risk \nModerate \nStable \nLiquidity Risk \nModerate \nStable \nCredit Risk \nModerate \nStable \n \n1=Low, 2=Moderate Low, 3 = Moderate, 4=Moderate High, 5=High \n \nRisk Mitigatory Measures \n4.27 The following mitigatory measures were implemented to manage the risks \nidentified as threats to the insurance and pensions sector during the review \nperiod: \na. \nGovernment bailout package (ZW$75 million allocated in 2020 \nNational Budget); \nb. \nIssued SI 280 of 2020 that allows payment of insurance premiums and \npensions and settlement of benefits in US$; \nc. \nIssued Guidance Paper on Currency Reforms to ensure equitable \nallocation of revaluation gains following the 2019 Currency Reforms; \nd. \nReviewed Framework for Prescribed Assets to include private equity, \nhybrid instruments, other alternative investments and Public–Private \nPartnerships (PPPs); \ne. \nIndustry challenged to issue innovative products and offer promotions \nthat encourage clients to continue paying premiums; \nf. \nUse of reinsurance especially for the funeral sector which has long \nshunned reinsurance arrangements; \n \n 1 \n \n2 \n \n3 \n \n4 \n \n5 \n \n45 \n \ng. \nEncourage mergers and takeovers for entities with higher risk of not \nmeeting the minimum capital requirements; and \nh. \nIssuance of inflation-indexed instruments. \n \n4.28 IPEC continues to monitor risks in the insurance and pensions industry and \nto provide guidance on mitigation of the risks while tapping into valuable \nlessons from fellow regulators locally and internationally. \nRegulatory Developments \n4.29 The commission registered the following regulatory developments: \na. \nMinimum Capital Requirements – Issued S.I. 59 of 2020 on MCRs. \nb. \nRisk-Based Capitalisation (ZICARP) – progressing well \nc. \nForeign-denominated policies – issued S.I. 280 of 2020 permitting \nwriting of forex business by insurers and pension funds \nd. \nOngoing Review of the Acts – the Insurance Act, IPEC Act and the \nPensions & Provident Funds Act. \ne. \nIssuance and enforcement of Guideline on Currency Reforms – S.I. 69 \nof 2020. \nf. \nIssued Circular 26 of 2020 IAS 29 (Financial Reporting in \nhyperinflationary economies \ng. \nIssued Risk Management and Corporate Governance Guidelines for \nthe Pensions Industry (Circular 11 of 2020) \n \n \n \n \n \n \n46 \n \n5. \nDEPOSIT PROTECTION SYSTEM \n \n5.1 Effective deposit protection is an important facet of any financial system \nsafety net, promoting public confidence in the sector. \n \nDeposit Protection Corporation Cover Level \n \n5.2 As at 31 December 2020, 95.5% of the banking sector’s depositor accounts \nwere fully covered at the cover level of ZW$10,000 per depositor per bank. \nThis is in line with the Public Policy Objectives of ensuring that at least \n90% of the depositors are fully covered. \n5.3 The deposit insurance coverage for the conventional banking institutions is \nreflected in Table 16 below: \nTable 16: Deposit Insurance Coverage for Conventional Banking Institutions \nItem \nDecember 2020 \nPercentage \nTotal Number of Deposit Accounts \n5,294,740 \n100% \nTotal Number of Deposit Accounts Fully Covered. \n5,058,088 \n95.5% \nTotal Number of Deposit Accounts Partially Covered. \n236,652 \n4.5% \nValue of Deposits in Fully Covered Accounts \nZW$2.9 billion \n3.2% \nValue of Deposits in Partially Covered Accounts. \nZW$87.7 billion \n96.8% \nTotal Value of Insured Deposits \nZW$5.3 billion \n5.8% \nTotal value of deposits \nZW$90.6 billion \n100% \nSource: Depositors Protection Corporation (2021) \n \n5.4 At the cover level of ZW$500 per depositor per institution, 96.2% of the \ndeposit-taking microfinance institutions (DTMFIs) depositors were fully \ncovered as shown in Table 17 below: \n \n \n \n \n47 \n \nTable 17 : Deposit Protection Cover for DTMFIs as at 31 December 2020 \nItem \nDecember 2020 \nPercentage \nTotal Number of Deposit Accounts \n150,989 \n100% \nTotal Number of Deposit Accounts Fully Covered. \n145,190 \n96.2% \nTotal Number of Deposit Accounts Partially Covered. \n5,799 \n3.8% \nValue of Deposits in Fully Covered Accounts \nZW$2.9 million \n1.2% \nValue of Deposits in Partially Covered Accounts. \nZW$230.6 million \n98.8% \nTotal Value of Insured Deposits \nZW$5.8 million \n2.5% \nTotal Value of Deposits \nZW$233.5 million \n100% \nSource: Depositors Protection Corporation (2021) \n \n \nRisks to the Deposit Protection Corporation Fund \n5.5 The DPC Fund is inherently exposed to funding and investment risk. \n5.6 Premiums collected by the Corporation are mainly invested on the money \nmarket in local currency instruments. Depreciation of the Zimbabwean \ndollar against the United States Dollar and the high inflation environment \nhave the potential of diminishing the value of the Deposit Protection Fund. \n5.7 The other risks are outlined in the table below. \nTable 18: Risks to the Financial Safety Net \nType of Risk \nLevel of \nInherent \nRisk \nRisk Mitigants \nQuality Risk rating \nResidual \nRisk \nTrend of Risk \nMacroeconomic Risk \n \nCovid-19 induced supply chain \ndisruptions \n \ninflationary pressures, \n \nlow aggregate demand, \n \nlow production and \n \nglobal economic risk. \nHigh \nLow \n vaccination to achieve herd immunity \n ZW$18 billion fiscal social support to business & \nindividuals \n Restrict money supply growth to below 22.5% per \nquarter. \n Funding of agricultural productivity \nHigh \nStable \nCovid-19 Pandemic \n High death and hospitalisation rates. \n Covid-19 induced supply chain \ndisruptions & economic activity. \n Reallocation of resources from \nother development programmes \n \nHigh \nHigh \n Lockdowns to restrict spread of disease \n Encourage telecommuting at work places \n vaccination of at least 60% of the population to \nachieve herd immunity \n limited opening of boarders for commerce \nHigh \nModerate \nInflation Risk \n ZW$ prices indexed at depreciating \nparallel market rates \n High government and local \nauthority service charges \n High fuel and electricity charges \nHigh \nModerate \n Allocation of foreign currency on the auction system \nis key in maintaining a stable exchange rate and \nmonetary stability. \n Restrict money supply growth to below 22.5% per \nquarter. \n \nModerate \n \nStable \n \nHazard risks \n Climate Change & Global Warming \nHigh \nLow \n Develop climate proof production systems e.g. \nHigh \nIncreasing \n \n48 \n \nType of Risk \nLevel of \nInherent \nRisk \nRisk Mitigants \nQuality Risk rating \nResidual \nRisk \nTrend of Risk \n Cyclones, earthquakes and droughts \nHazards materialises as credit and \noperational \nrisks \nto \nfinancial \ninstitutions. \n \nirrigation in agriculture. \n Reduction in the emission of greenhouse gases. \n incorporate \nhazard \nrisks \nin \nEnterprise \nRisk \nManagement and financial sector resilience\\ stress \ntests frameworks. \n Strengthening Civil Disaster Response units \nOperational Risk \n Effectiveness of management \ncontrols in era of telecommuting \n Disruptions to business processes \ndue to power and ICT failures \n People risks due to high cost of \nliving against depressed wages \nModerate \nModerate \n Telecommuting policies and procedures. \n Importation of power and installation of solar based \npower systems \n Continuous review of wages and salaries and \noffering of non-financial benefits \n \nModerate \nStable \nCyber Risk \n Accelerated Digitisation for \nfinancial services offerings. \n digital platforms exposed to cyber-\ncrimes such as card cloning, pin \nhacking, and sophisticated IT \nviruses \nHigh \nModerate \n promulgation of cyber security bill \n upgrade of cyber security systems \n public or client education campaigns \n client electronic notifications or messaging warning \nof cyber-attacks. \nHigh \nincreasing \n \n \nKEY \n \nGreen \n- Level of risk is considered minor \nLime \n- Level of risk is considered low \nYellow - Level of risk is considered moderate \nOrange- Level of risk is considered high \nRed \n- Level of risk is considered extreme \nTREND \nGreen \n- Level of risk is expected to decrease in the next 12 Months \nAmber - Level of Risk is expected to remain stable in the next 12 Months \nRed \n- Level of risk is expected to increase in the next 12 months. \n \n \nRisk Mitigation \na. Adequate Funding: \n5.8 Adequacy of the DPC Fund is of paramount importance in enhancing the \nCorporation’s operational readiness to pay depositors in the event of \noccurrence of a compensating event. At ZW$134.9 million as of 31 \nDecember 2020, the DPC Fund was inadequate to cover an exposure of \nZW$166.9 million to the eight (8) contributory institutions (CIs), including \nmostly DTMFIs, on the watch list category. \n5.9 With effect from 1 January 2021, the Corporation reviewed upwards the \npremium rate from 0.2% to 0.3% per annum, as one of the strategies to close \nthe funding gap. \n \n \n49 \n \n \n \nb. Protection of FCA deposits \n5.10 The DPC is liaising with stakeholders for protection of FCA deposits which \nhave remained uncovered by the Deposit Protection Scheme (DPS) since \nJanuary 2019. As at 31 December 2020, gross FCA deposits were US$1.6 \nbillion or ZW$130.9 billion at the prevailing rate of ZW$81.79/US$1 and \naccounted for 55.1% of the combined gross ZW$ and converted FCA \ndeposits of ZW$237.7 billion in the banking sector. \n5.11 Extension of deposit protection to FCA Deposits, which is under \nconsideration is expected to help to boost depositor confidence and promote \noverall financial stability. \nc. Investment Diversification: \n5.12 The Corporation is actively diversifying its investment portfolio to hedge \nagainst inflation as well as improve the rate of return on investment. \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n50 \n \n6. \nFINANCIAL MARKETS INFRASTRUCTURE \n6.1 In 2020, the Reserve Bank continued to advance the development of the \npayment, clearing and settlement sector with efforts primarily geared \ntowards promoting and accelerating the digital financial services and \nbuilding financial resilience. \n6.2 Notably, the sector registered significant investment in the information and \ncommunication technology resulting in achievement of a strategic fit of \n90% digital payment transactions in the economy. \n6.3 The national payment system is well positioned to deal with some of the \nchallenges posed by the Covid-19 pandemic. \nPayment Systems Transactional Activities \n6.4 Total value of national payment systems transactions increased 5.43 times \nto ZW$2.503 billion in 2020 from to ZW$389 billion in 2019, while the \nvolumes decreased by 10% to 1.9 billion in 2020 from 2.1 billion in 2019 \ntransactions as shown in Figure 20 below. \nFigure 20: Total Annual Payment Systems Transactions from 2009 - 2020 \n \nSource: RBZ(2021) \n6.5 There are notable increases in transaction volumes, over the last few years \nas reflected above. The current systems have capacity to handle further \nincreases in transactions and remain stable. \n0.0\n0.5\n1.0\n1.5\n2.0\n2.5\n -\n 50.00\n 100.00\n 150.00\n 200.00\n 250.00\n 300.00\n 350.00\n 400.00\n2009\n2010\n2011\n2012\n2013\n2014\n2015\n2016\n2017\n2018\n2019\n2020\nVolumes in Billions\nVlaues in ZWL Billions\nVALUES LHS\nVOLUMES RHS\n \n51 \n \n6.6 The Bank monitors payment systems providers and participants on an \nongoing basis to ensure systems have sufficient capacity to cater for \ntransaction volumes growth. \n6.7 Further, the Bank monitors growth in POS and Mobile transactions to \nensure that the related collateral is updated timeously and adequately to \nmanage systemic and credit risks. \n6.8 The management of settlement and liquidity risks in the clearing and \nsettlement schemes was found to be satisfactory to maintain safety and \nstability of the payment systems. \n6.9 Over the review period, electronic money on mobile money platforms was \nnoted to be adequately aligned to the bank balances at the participating \nbanks. In this regard, real time online monitoring of systems continued \nsmoothly both at banks and mobile money systems. \n6.10 The Real Time Gross Settlement System (RTGS) is particularly critical for \nlarge value, time critical payments between system participants, other retail \npayment systems and central securities depositories. Stability of the system \nis critical as the system manages a greater part of the transactions. The Bank \nwill continue to encourage channelling of large value transactions through \nthis system, which is credit-push based, to manage systemic risks. \n6.11 The RTGS annual transactional values and volumes are shown in Figure 21 \nbelow. \nFigure 21: RTGS Annual Transactional Values and Volumes 2009-2020 \n \nSource: RBZ(2021) \n -\n 2\n 4\n 6\n 8\n 10\n 12\n0\n25\n50\n75\n100\n125\n150\n175\n200\n225\n250\n2009\n2010\n2011\n2012\n2013\n2014\n2015\n2016\n2017\n2018\n2019\n2020\nVOLUMES IN MILLIONS\nVALUES IN BILLIONS\nValues\nVolume\n \n52 \n \n6.12 The Large Value Payment, Clearing and Settlement Systems - RTGS and \nCentral Securities Depository (CSD) - maintained a high level of \navailability of 99% during the year under review with few network \nconnectivity challenges experienced. \n6.13 Meanwhile, the Bank has engaged the CDS system supplier on a required \nupgrade of the platform to ensure the flawless processing of transactions \nand system availability at times. \n6.14 RTGS and CSD systems are financial market infrastructures through which \nthe Bank implements monetary policy and provides liquidity to the financial \nsystem. Against this background, continuous upgrades are critical in \nensuring financial stability and upholding the public interest objectives of \nsafety and soundness of payment infrastructure. \n \nInteroperability \n6.15 All players including mobile money entities are connected to the \nZimswitch platform effective 15th of August 2020, in line with the Banking \n(Mobile \nTransmission, \nMobile \nBanking \nand \nMobile \nMoney \nInteroperability) Regulations, Statutory Instrument (S.I.) 80 of 2020. The \ninteroperability has enhanced convenience to the market and reduced \ntransactional costs through efficiency and shared infrastructure. \n6.16 Resultantly, the value of mobile interoperability transactions increased \nfrom ZW$400 million in October 2020 to ZW$1.033 billion in December \n2020 as shown in Figure 22 below. Going forward the transaction values \nand volumes are expected to maintain the growth trajectory in 2021. \n \n \n \n \n \n \n53 \n \nFigure 22: Mobile Payments Interoperability Transaction October 2020-March 2021 \n \nSource: RBZ(2021) \n \n6.17 As the transaction volumes increase in 2021 the related exposures, required \ncollateral, settlement and systemic risk are also expected to grow in \nsympathy. As such the Bank will continue to monitor the collateral \nmanagement system in line with the increased exposures to ensure payment \nsystems stability. \nNew Payment Systems, Services and Delivery Channels \n6.18 The growth of payment systems providers and participants as well as \nrelated access devices and channels is critical for stability and competition \nwhich enhance consumer protection and market conduct issues. \n6.19 In this regard the Bank has continued to strengthen the approval and \nlicensing requirements as well as the due diligence processes to ensure that, \nno risk is imported into the financial services sector through the payment \nsystems. The Bank assessed and approved 21 innovative products during \nthe period under review. These were mainly aimed at meeting the increasing \ndemand and change in consumer tastes which include mobile banking, card \nand enhancements of use cases of existing electronic products among others \nas indicated by Figure 23 below. \n -\n 100\n 200\n 300\n 400\n 500\n 600\n 700\n 800\n 900\n -\n 0.20\n 0.40\n 0.60\n 0.80\n 1.00\n 1.20\n 1.40\n 1.60\n 1.80\n 2.00\nOct-20\nNov-20\nDec-20\nJan-21\nFeb-21\nMar-21\nVolumes in Thousands\nValues in Billions\nIncoming Values LHS\nOutgoing Values LHS\nIncoming Vol RHS\nOutgoing Vol RHS\n \n54 \n \nFigure 23: Payment System Initiatives 2018-2020 \n \n Source: RBZ (2021) \n6.20 All access points and devices recorded a positive growth during the period \nunder review except for ATMs. \n6.21 Over a thousand business continuity applications were processed as \ncompared to two hundred in 2019, representing more than 400% increase. \nThe increase was attributable to pressures brought about by sudden changes \nof operating circumstances in the Covid-19 pandemic environment. The \ncontingency measures put in place were able to smoothly facilitate the \nseamless processing of financial transactions without causing any \ninstability. \n6.22 The Bank will continue to facilitate business continuity for banks with \ntechnical challenges as part of its policy mandate to promote financial \nstability in the economy. \n6.23 The Bank continues to safeguard the integrity of the national payment \nsystems, by enforcing and supporting payment services providers in \ncomplying and upholding the best practice standards including anti-money \nlaundering and countering financing of terrorism (AML/CFT). \n \nE-Banking\nPlatform\nMobile Banking\nCard\nCrypto/Virtual\nSwitch/Payment\nsystem\nPOS\n2018\n3\n12\n6\n0\n2\n3\n2019\n3\n12\n6\n0\n2\n3\n2020\n4\n7\n6\n0\n4\n0\n0\n2\n4\n6\n8\n10\n12\n14\n2018\n2019\n2020\n \n55 \n \nRisk Matrix and Risk Management Systems \n6.24 The sound operation of payment systems is central to facilitating financial \ntransactions and supporting economic growth. The advance in technology \npresents an opportunity for payment system providers to develop innovative \nproducts and services. These technological advances, however, change the \nrisk landscape, particularly by increasing exposure to cyber and money-\nlaundering, and terrorism-financing risks. \n6.25 Below are key composite risk assessments for payment systems, which \narise from the combination of level of inherent risk and related risk \nmanagement systems. The level of inherent risk is ranked from low, \nmoderate to high and the risk management systems are ranked from strong, \nacceptable to weak. Payment systems have high inherent risk as shown by \nthe strike through on high inherent risk and strong risk management \nsystems (as shown by the strike through) to manage these risks leading to a \nmoderate composite risk (as shown by the strike through) as illustrated in \nTable 19 below. \nTable 19: Payment Systems Risk Management Assessment Matrix \n6.26 Overall payments systems have moderate composite risk which is in the \nstable direction leading to an overall composite risk assessment of a \nmoderate to high risk as shown in Table 20 below. \n \nCOMPOSITE RISK ASSESSMENT \nLEVEL OF INHERENT RISK \nLow \nModerate \nHigh \nRISK MANAGEMENT \nSYSTEMS \nStrong \nlow \nModerate \nModerate \nAcceptable \nModerate \nModerate to High \nHigh \nWeak \nModerate \nHigh \nHigh \n \n56 \n \nTable 20: Overall Payment Systems Risk Assessment Matrix \nOVERALL COMPOSITE RISK ASSESSMENT \nDIRECTION OF RISK \nDecreasing \nStable \nIncreasing \nCOMPOSITE RISK \nLow \nlow \nModerate \nModerate \nModerate \nModerate \nModerate to \nHigh \nModerate to High \nModerate to High \nModerate to \nHigh \nModerate to \nHigh \nHigh \nHigh \nHigh \nHigh \nHigh \n6.27 Overall payments systems have a moderate to high risk as shown in table \nwhen analysed by each type of risk as shown in the table below. \nTable 21: Payment Systems Risk Assessment by Risk Type \nType of Risk \nLevel \nof \nAggregate \nInherent Risk \nAdequacy of \nAggregate \nRisk \nMgt. \nSystems \nOverall \nComposite \nRisk \nDirection \nof \nOverall \nComposite Risk \nResidual \nComposite \nRisk \nSystemic \nModerate \nStrong \nModerate \nStable \nModerate to \nHigh \nCredit \nLow \nStrong \nLow \nStable \nModerate \nSettlement \nModerate \nStrong \nModerate \nStable \nModerate to \nHigh \nInterest \nLow \nStrong \nLow \nStable \nModerate \nMarket: \nForeign \nExchange \nLow \nStrong \nLow \nStable \nModerate \nLiquidity \nModerate \nStrong \nModerate \nIncreasing \nHigh \nOperational \nHigh \nStrong \nModerate \nStable \nModerate to \nHigh \nCyber crime \nHigh \nStrong \nModerate \nIncreasing \nHigh \nConfidentiality \nHigh \nStrong \nModerate \nStable \nModerate to \nHigh \nMoney \nLaundering and \nTerrorism \nFinance \nModerate \nStrong \nModerate \nStable \nModerate to \nHigh \nLegal & \nCompliance \nHigh \nStrong \nModerate \nStable \nModerate to \nHigh \nReputation \nHigh \nStrong \nModerate \nStable \nModerate to \nHigh \nStrategic \nHigh \nStrong \nModerate \nStable \nModerate to \nHigh \nAggregate \nHigh \nStrong \nModerate \nStable \nModerate to \nHigh \n \n57 \n \n6.28 The Bank will continue to monitor the resilience of the time critical and \nhigh value-risk payment systems in order to identify any emerging or \nspecific vulnerabilities that may affect the nature of financial stability risks \ngoing forward. \n \nHighlights on Specific Programs and Initiatives \na) Cyber Security \n \n6.29 Cybercrime is one of the risks targeting the financial sector which is \nexpected to increase in sophistication and frequency in view of the \nincreased leveraging on technology. \n6.30 The national payment systems have largely digitalised and have become a \nmajor target for fraudsters and cyber criminals. Evidence at hand indicate \nthat, a number of various security breaches have been reported such as \nransomware, card skimming, phishing and SQL (Structured Query \nLanguage) injection attacks. \n6.31 It is imperative for regulators to stay a step ahead and proactively formulate \nsafety-nets for financial system stability. In this regard, the Bank is \nincreasingly coordinating efforts to reinforce the financial cyber security \nlandscape to address the constantly evolving threats. To this end, the Bank \nhas issued a Cybersecurity Framework that outlines the minimum \nrequirements for participant banks and payment services providers to \nenhance cyber risk management.. \n6.32 Meanwhile, continuous guidance to the market is being issued through \nadvisory circulars and directives to the regulated entities. \n \n \n \n \n \n \n \n58 \n \nb) Migration to EMV Chip Technology \n \n6.33 EMV, (Europay, MasterCard and Visa) is a set of international standards \nthat defines interoperability of secure transactions across the international \npayments landscape. \n6.34 EMV has become one of the major stepping stones to the future of payments \ndue to its dynamic data authentication (Contactless, Mobile). \n6.35 To ensure uniformity in the card payment ecosystem, banks were required \nto implement the EMV measures that handle card-based payments, with \nless risk. \n6.36 The Bank will continue with efforts to ensure full EMV compliance of \npayment systems devices, access points and related infrastructure \nparticularly for cards which have been noted to be lagging. \n \nc) Swift Customer Security Programme and Related Activities \n6.37 The Reserve Bank continues to review SWIFT operations and engagements \non an ongoing basis to ensure robust and increased security of the SWIFT \narchitecture and the financial system at large. \n6.38 There were continuous engagements with SWIFT participants on the \nimplementation of SWIFT projects underway during the period under \nreview namely the Customer Security Program (CSP), Global Payment \nInitiative (GPI), ISO 20022 and Standard Release 2021. \n6.39 ISO 20022 is an international message standard for transmitting financial \ntransactions between financial institutions and businesses alike. The \nstandard helps to facilitate efficiency, increase security and interoperability \nin payment systems. \n6.40 A country subcommittee was established to provide guidance to the SWIFT \ncommunity on the migration to ISO20022 earmarked for implementation in \n2022. \n \n \n59 \n \nd) \nRegional and International Developments \n6.41 Zimbabwe is a member of the SADC Real Gross Settlement System \n(SADC-RTGS) and Common Market for Eastern and Southern Africa \nRegional Payment and Settlement Systems (COMESA-REPSS) which are \nprimarily intended to promote inter-regional trade. \n6.42 Zimbabwe, Zambia and South Africa are currently testing the retail \npayment streams which when implemented will further promote low value \npayments, mainly in the form of remittances given the intra-regional labour \nmigration. \n6.43 At the end of December 2020, Zimbabwe had 14 banks on the SADC-\nRTGS facilitating cross border payments. \n6.44 The regional payment platforms will promote the much required inter-\nregional trade and reduce transactional costs on payments going through \ninternational channels while managing the de-risking challenge. The \nexpected reduction in the flow of funds via illegal channels will positively \nimpact on financial stability. \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n60 \n \n7. \nAML/CFT SURVEILLANCE INITIATIVES \n7.1 The domestic economy thrives when the financial services sector is safe and \nsound thereby providing the necessary conditions for smooth monetary \npolicy transmission and financial intermediation. The Financial Intelligence \nUnit (FIU) undertakes a range of oversight activities relating to anti-money \nlaundering, countering financing of terrorism and proliferation financing. \n7.2 AML/CFT risk in the context of assessment is composed of both threat and \nvulnerability. The following sections highlight the scenario for risk for \nAML selected sectors. \nSectoral Risk Assessment \na) \nMobile Money Service Providers \n7.3 Mobile Money Service Providers (MMP) operate in a technologically \nadvancing and dynamic sector. Against this background, AML/CFT/PF risk \nin the MMP sector of financial services industry is inherently high. \n7.4 MMP threat levels are considered to have dissipated towards the end of \n2020 because of enforcement activities instituted. On the downside, \nhowever, vulnerability of the sector remains high, giving an overall high \ninherent risk. \n7.5 The Reserve Bank is currently seized with the implementation of the risk \nbased supervision of payment services providers including mobile money \nproviders. \n7.6 At the same time, the Bank has progressively implemented a number of \nmeasures to strengthen the effectiveness of its AML/CFT regime and \naddressed related technical compliance deficiencies. \n7.7 During the period under review, the Bank in collaboration with the \nFinancial Intelligence Unit, adopted a principled stand against any \nviolations with a view to enhancing financial stability in the economy. \n \n61 \n \n7.8 A number of payment providers and mobile money agents were penalised \nfor abusing the payment channels. The Bank also directed the pruning of \nselected services and products that were being used as springboards for \nundesirable activities. \n7.9 The Bank is also increasingly conscious of the opportunities and threats \nbrought about by new innovations and technologies. To this end, staff of \npayment services providers were trained through joint efforts with the FIU \nin order to foster compliance culture. \n7.10 Going forward, the Bank will continuously apply the risk based approach \nholistically and where necessary take appropriate corrective measures to \nensure stability and integrity of the national payment system. \nb) \nMoney Value Transfer Agencies \n7.11 Amounts flowing through the official money value transfer channels \nshowed a positive increasing trend in 2020. \n7.12 The Money Value Transfer Agencies (MVTA) sector for the period under \nreview was deemed to be moderate to high risk, taking second place to \nMMP. There are indications that large amounts of illicit money transfers \nare taking place across borders away from official channels. Drivers to the \nillicit flows range from apparently benign causes such as transaction costs \nand culture to more malignant causes such as origin and purpose of funds. \n7.13 Given the implication of unrecorded flows to economic planning as well as \nthe implications for ML/TF that may arise from funds flowing underneath \nofficial controls, the sector requires focused attention to reign in deviant \nbehaviour. \n7.14 The FIU is continuing to work with other stakeholders on awareness raising \nfor participants in this sector. \n \n \n \n \n62 \n \nc) \nBanking Sector \n7.15 The Banking sector is rated medium in the period under review for \nAML/CFT/PF risk. \n7.16 There are varying levels of adoption of AML/CFT compliance and thus \nvulnerability and risk management profiles observed for different \ninstitutions in the sector. \n7.17 Overall, the Covid-19 pandemic created risk for the banking sector, \nparticularly due to the increased uptake of previously low risk rated \nproducts through digital on boarding processes. Whilst banks have been \neager to embrace the technology and remain afloat in the pandemic, their \ncompliance sections are generally lagging behind in AML/CFT compliance \nmonitoring in relation to the challenges that have arisen. This has created \nconsiderable vulnerability to digital and IT related fraud activities. \n7.18 It is anticipated that the risk-based approach for high risk products and \ninstitutions will go a long way in addressing the fragmented compliance \nthat exists within the banking sector. \n \nd) \n Insurance, Pensions and Securities \n7.19 These sectors remain low risk for AML/CFT. The major cause for low risk \nfor Insurance and Pensions is partly the low levels of activities in these \nsectors, whilst Securities assumed a higher level of risk in the period under \nreview given the increased activity in investment and broking that arose as \nan avenue to invest funds in the pandemic period. \n7.20 The Financial Intelligence Unit is working closely with IPEC and SECZ to \nmonitor these sectors for possible heightened risk exposure. \n \ne) \n Microfinance Institutions \n7.21 Microfinance institutions (MFIs) continue to be classified as low risk for \nAML/CFT/PF. \n \n63 \n \n7.22 However, the level of risk potentially increased in the period under review \nas a result of the closure of agent lines for illicit activities in the mobile \nfinancial services sector. Entry barriers into the sector are not sufficiently \nprohibitive compared to other sectors and the minimum AML/CFT/PF \nsupervisory activity may lure suspect funds and players into the sector. \n \nHigh Risk Classification by the FATF \n7.23 The Financial Action Task Force has continued to classify Zimbabwe as \na High-Risk jurisdiction due to the deficiencies in its AML/CFT regime and \nother variables including political and credit risk. As such, transactions \nfrom the country are subject to enhanced due diligence. The country has \nalso been grey-listed by the International Country Risk Guide (ICRG). \n7.24 An action plan to address the deficiencies has been agreed by the ICRG and \nthe Zimbabwean Authorities. During the period under review, the country \nwas in its second year of this plan of action. \nDe-risking \n7.25 De-risking practices by global financial institutions threaten to cut off \naccess to the global financial system for remittance companies and local \nbanks, putting them at risk of losing access to the global financial system. \n7.26 During the period under review it was noted that 9 financial institutions had \ntheir corresponding relationship restricted and 4 financial institutions had \ntheir corresponding relationship terminated due to either jurisdiction \nconcerns, regulatory concerns and/or respondent concerns. \n7.27 De-risking from correspondent banks has put pressure on banks to tighten \ntheir AML/CFT measures, in order to satisfy their correspondent partners \nof the robustness of their systems, to ensure they are not being used as \nconduits for laundering dirty money. \n \n64 \n \n7.28 This has led to closure of 71 bank accounts due to AML/CFT concerns and \n34 accounts due to correspondent bank conditions during the period under \nreview. \nFinancial Inclusion \n7.29 The FIU supports financial inclusion, as formal transactions by a banked \neconomy are less vulnerable to ML/TF/PF. Notable gains have been made \non the front of financial inclusion specifically with regards to KYC Lite \nproducts. \n7.30 The Financial Intelligence Unit continues to issue guidance in relation to \napproval of new products as well as facilitating related capacity building \ninitiatives. The FIU will also conduct ongoing due diligence and close \nmonitoring to proactively mitigate emerging risks. \nCrypto Assets and other Digital technologies \n7.31 Internationally from an AML/CFT/PF perspective, authorities are \nadvocating for licensing and supervision of emerging technologies for \nAML/CFT. \n7.32 The Bank has taken a proactive approach to ensure financial innovation \ndoes not destabilise the country’s financial system. A Fintech Unit was \nestablished with the main mandate of researching and monitoring Fintech \ndevelopments in the country. To foster responsible innovation, the Bank \nestablished a Regulatory Sandbox in March 2021, which provides a \nplatform for testing new financial innovations in a regulated environment \nbefore the technology is ushered to the market. \n7.33 The Bank is cautious about the potential impact of digital currencies, given \nthe sensitivities around currency issues. As such, the Bank will remain \nguided by international developments on Fintech issues as well as guidance \nfrom international and regional standard setting bodies. \n \n65 \n \n8. \nOUTLOOK \n8.1 The global economy is projected to recover in 2021. However, financial \nstability risks associated with the Covid-19 pandemic are likely to persist in \nlight of the uncertain path the pandemic will take across the world. From a \nglobal perspective, rising cyber risks, asset price increases and debt build-\nup from accommodative monetary policies effected in 2020 are some of the \nkey risks to financial stability. The wind-down of supportive fiscal and \nmonetary policy measures are also crucial factors that will determine the \neconomic recovery trajectory. \n8.2 Economic recovery in advanced economies due to the availability of the \nvaccine may result in tapering of money supply growth in pursuance of \ndisinflationary measures, with consequent increases in interest rates. \nShould average global interest rates increase this might impact the servicing \ncosts and availability of lines of credit. \n \nBanking Sector Stability \n8.3 A domestic economic rebound is expected on the back of the extensive \nCovid-19 vaccination campaign that is currently being undertaken by the \nGovernment of Zimbabwe. Industry is expected to reopen resulting in \nincreased economic activities which will spur growth across the different \nsectors of the economy. \n8.4 The ongoing inflationary neutral and monetary stabilization measures are \nexpected to go a long way in mitigating economic and social costs. Inherent \ncredit risk is likely to remain moderate in the short to medium term whilst \noperational risk may remain high due the adoption of digital financial \nservices and associated technological advancements. Notwithstanding, the \nbanking sector is expected to maintain its resilience in light of strong \nbalance sheets, capitalisation and profitability. \n \n66 \n \n \nFinancial Market Infrastructures \n8.5 The risk outlook for the payment system infrastructure shall continue to be \ndominated by the course and effects of the Covid-19 pandemic. It is \nexpected that the support measures implemented by the Government will \ncontinue to assist financial market infrastructures to function satisfactorily \nthrough the pandemic. \n8.6 Players are urged to continue to manage risks relating to governance, cyber \nsecurity, fraud, settlement, operation, compliance, money laundering and \nfinancing of terrorism among others. \n8.7 The Bank will continue to enhance the regulatory framework that embraces \nnew developments, capacity building through upskilling of staff, risk based \nmonitoring and supervision as well as collaboration with other supervisors. \n8.8 The Bank further encourages the adoption and positioning of new business \nmodels commensurate with the obtaining risk profile in the environment as \nmitigatory measures to the identified vulnerabilities and threats. \n \nInsurance and Pensions Industry \n8.9 Against the background of anticipated macroeconomic stability \ncharacterised by declining inflation, stable exchange rates, a successful \nvaccination programme, among other factors, the industry is anticipating a \nrebound of the economy. \n8.10 The industry also expects increases in occupancy rates as well as uptake of \nReal Estate Investment Trusts and an increase in listings and trades at the \nVictoria Falls Foreign Exchange, which have a bearing on the investment \nreturn and liquidity of the insurance and pensions industry. \n \n67 \n \n8.11 At regulatory and supervisory level, IPEC will be working with players in \nthe industry to address data integrity challenges, governance gaps and \ncompensation to policyholders and pension scheme members following \ncurrency reforms. \n8.12 Major risks requiring effective management include reputation, credit, \nliquidity, cyber, third party and operational risks. Some of the risks may be \nreduced if the Covid-19 pandemic is sufficiently contained at national level. \n \nSecurities Market Expectations \n8.13 The year under review saw the operationalization of the Reuters foreign \nexchange market tracker system which successfully stabilized the formal \nmarket prices and enhanced industry access to the foreign currency. \n8.14 SEC remains focused on sustainable regulatory policy framework for \npurposes of rebuilding confidence, promoting new listings as well as \nattracting investors onto the market. \n8.15 Key risk areas in the outlook period include the Covid-19 induced business \ndisruptions which affect the full operations of the Securities Market \nIntermediaries (SMIs) and listed entities. The players are expected to \ncontinue to invest in technology in a manner which mitigates operational \nrisks and promote profitability and going concern status. \n8.16 While domestic inflationary pressures have been receding there are some \nresidual threats to the capital markets. Inflation risk affects performance of \nlisted entities performance and negative returns may dampen the interest of \nforeign investors. \n8.17 For the rest of 2021, the industry expects the ongoing financial sector \nreforms to result in a sustainable foreign currency reserves position and \nsustained economic revival. \n \n68 \n \n8.18 The increasing dependence on technology in the capital markets has \nreactivated the risk of cyber-attacks on financial data and systems. While \nthere has been no incidence of data leaks locally, in the short term, these \nattacks will continue to pose a threat to financial institutions. \n8.19 The Commission remains vigilant in its AML risk monitoring to ensure \nrevenue generated from illegal activities do not find its way to the capital \nmarkets and/or be used for mergers and acquisitions. \n8.20 The rejuvenation of VFEX is expected to be a game changer in the medium \nto long term. The authorities shall endeavour to expand the listed entities \non the Exchange to promote portfolio building and management. \n \nDeposit \nProtection \nSystem \n \n8.21 From a financial safety net perspective, the financial sector has remained \nstable and resilient, despite its vulnerability to various risks. \n8.22 The corporation expects to continue to build its capacity to reduce the scope \nof funding risk which is considered to be high. Risk mitigation initiatives \ninclude (a) actuarial determination of optimal premium rate and risk-based \npremium rate system; (b) investment income diversification; and engaging \nwith stakeholders with a view to protect FCA deposits. \n \n \n \n \n \n \n \n \n69 \n \nAppendices \n \nAppendix 1: Macroeconomic Indicators for Zimbabwe \n \n2015 \n2016 \n2017 \n2018 \n2019 \n2020 (Est) \nREAL SECTOR \n \n \n \n \n \n \nReal GDP at 2012 Market prices (US$' m) \n18,188.30 \n18,325.80 \n19,187.80 \n20,234.56 \n19,024.30 \n18,236.22 \nNominal GDP at Market (US$'m up to 2016) \n19,963.10 \n20,548.70 \n22,434.60 \n36,921.29 \n161,977.15 \n1,070,640.29 \nGDP at Market Prices % changes \n1.8 \n0.8 \n4.8 \n5.5 \n-6 \n-4.1 \nGDP per capita \n1,304.50 \n1,284.90 \n1,316.40 \n1,189.84 \n933.64 \n1,159.81 \n \n \n \n \n \n \n \nPRICES \n \n \n \n \n \n \nMonth-on-Month (end period) % \n-0.11 \n0.06 \n0.53 \n9.03 \n16.6 \n4.2 \nAnnual Inflation (end period) % \n-2.5 \n-0.93 \n3.46 \n42.1 \n521.2 \n348.6 \nAnnual Inflation (period average) % \n-2.41 \n-1.56 \n0.9 \n10.6 \n173.3 \n654.9 \n \n \n \n \n \n \n \nEXTERNAL SECTOR \n \n \n \n \n \n \nTrade Balance (US$m) \n-2113.5 \n-1262.6 \n-950.8 \n-2464 \n-131.4 \n53.9 \nCurrent a/c balance (US$m) \n-1596.6 \n-697.4 \n-295 \n-1379.63 \n10235.65 \n67560.85 \nCurrent a/c balance (% of GDP) \n-8.00% \n-3.40% \n-1.30% \n-3.70% \n6.30% \n6.30% \n \n \n \n \n \n \n \nMONETARY SECTOR* \n \n \n \n \n \n \nBroad Money M3 (ZW$ '000) \n4,765,422 \n6,200,282 \n7,817,279 \n10,009,905 \n350,180,000 \n202,724,000 \nDomestic Credit (ZW$ '000) \n5,535,396 \n8,451,438 \n10,697,156 \n14,982,345 \n27,820,000 \n139,267,000 \nCredit to Private Sector (ZW$ '000) \n3,830,132 \n3,495,107 \n3,719,426 \n4,058,651 \n11,113,000 \n121,390,000 \nCredit to Parastatals (ZW$ '000) \n140,910 \n356,235 \n591,301 \n737,587 \n988,381.20 \n- \nCredit to Government ( net )(ZW$ '000) \n1,564,355 \n4,466,829 \n6,277,468 \n9,992,337 \n14,063,000 \n14,241,000 \nNominal Minimum Lending Rate (%) \n6 \n4 \n4.5 \n4 \n5 \n6 \nNominal Maximum Lending Rate (%) \n16 \n18 \n18 \n18 \n65 \n65 \n \n \n \n \n \n \n \nSTOCK MARKET INDICES \n \n \n \n \n \n \nIndustrial Index (Points) \n114.9 \n134.8 \n333 \n487.13 \n766.34 \n2636.34 \nMining Index (Points) \n23.7 \n60.9 \n142.4 \n227.71 \n316.66 \n4134.09 \nGrand Market Capitalisation (US$m) \n3,073.40 \n3,763.90 \n9,580.60 \n19,189.50 \n27,977.00 \n317,879.31 \n \n \n \n \n \n \n \nPUBLIC FINANCES \n \n \n \n \n \n \nRevenue excluding grants \n3,737.10 \n3,502.20 \n3,950.20 \n5,533.00 \n22,971.00 \n173,496.00 \nRevenue including grants \n3,737.10 \n3,502.20 \n4,375.90 \n5,533.00 \n22,971.00 \n173,496.00 \nCapital expenditure and net lending \n252 \n387.2 \n1,530.00 \n3,087.90 \n2,194.30 \n57,742.00 \nRecurrent Expenditure \n3,348.00 \n3,807.80 \n4,515.00 \n5,197.00 \n13,823.00 \n120,754.00 \nTotal expenditure and net lending \n3,923.60 \n4,705.50 \n6,045.00 \n5,743.00 \n7,765.00 \n65,655.00 \nBalance excluding grants \n-186.5 \n-1,203.30 \n-2,094.80 \n-210.00 \n15,206.00 \n107,841.00 \nBalance including grants \n-186.5 \n-1,203.30 \n-1,669.10 \n-210.00 \n15,206.00 \n107,841.00 \nPOPULATION (millions) \n13.9 \n14.3 \n14.6 \n14.9 \n14.4 \n14.9 \n \n \n70 \n \nAppendix 2: Selected Banking Sector Indicators, 2016 – 2020 \n \n \n2016 \n2017 \n2018 \n2019 \n2020 \nCapital Adequacy Ratio \n24.55% 27.64% \n28.22% 33.41% 34.62% \nNonperforming Loans Ratio \n7.88% \n7.05% \n6.92% \n1.75% \n0.31% \nLarge Exposures to Capital \n93.03% 94.78% \n97.60% 35.47% 32.61% \nReturn on Equity \n13.36% 15.50% \n26.28% 58.77% 45.54% \nReturn on Assets \n2.49% \n2.61% \n4.57% \n8.99% 13.55% \nPrudential Liquidity Ratio \n97.07% 98.58% 100.97% 98.31% 73.06%", "source": "SARB", "stratum": "cb_requests", "fetch_date": "2026-05-11", "url": "file:///SARB/Financial_Stability_Reports/Financial-Stability-Report-2020.pdf"}