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ANNUAL FINANCIAL
STABILITY REPORT

Table of Contents
Purpose of the Report .............................................................................................................................. 5
GOVERNOR’S FOREWORD ............................................................................................................... 6
1.
FINANCIAL STABILITY RISKS ................................................................................................. 9
2.
BANKING SECTOR SOUNDNESS ............................................................................................ 17
3.
CAPITAL MARKETS .................................................................................................................. 28
4.
INSURANCE AND PENSIONS INDUSTRY ............................................................................. 36
5.
DEPOSIT PROTECTION SYSTEM ........................................................................................... 46
6.
FINANCIAL MARKETS INFRASTRUCTURE........................................................................ 50
7.
AML/CFT SURVEILLANCE INITIATIVES ............................................................................ 60
8.
OUTLOOK ..................................................................................................................................... 65
Appendices .............................................................................................................................................. 69

List of Tables
Table 1: Macroeconomic Environment Heat Map ............................................................................. 16
Table 2:Banking Sector Risk Matrix as at 31 December 2020 .......................................................... 20
Table 3: Regulated institutions in the Capital Markets ..................................................................... 28
Table 4: Securities Exchanges Performance ....................................................................................... 29
Table 5: Equity Markets Performance Summary............................................................................... 30
Table 6: FINSEC ATP Performance Summary .................................................................................. 32
Table 7 : Asset Management Summary (December 2020) ................................................................. 33
Table 8: Summary of Key Risks to Capital Markets and Risk Mitigation Measures ..................... 35
Table 9 : Insurance Sector Infrastructure ........................................................................................... 36
Table 10 : Insurance Sector Premium Income .................................................................................... 37
Table 11 : Insurance Industry Assets and Liabilities ......................................................................... 37
Table 12 : Insurance Sector Minimum Capital Requirements Compliance..................................... 38
Table 13: Financial performance of the Pensions Industry ............................................................... 39
Table 14: Compliance with Minimum Capital Requirements as at 31 December 2020 .................. 42
Table 15: Insurance and Pensions Sector Risk Matrix....................................................................... 44
Table 16: Deposit Insurance Coverage for Conventional Banking Institutions ............................... 46
Table 17 : Deposit Protection Cover for DTMFIs as at 31 December 2020 ..................................... 47
Table 18:Risk to the Financial Safety Net ........................................................................................... 47
Table 19: Payment Systems Risk Management Assessment Matrix ................................................. 55
Table 20: Overall Payment Systems Risk Assessment Matrix ........................................................... 56
Table 21: Payment Systems Risk Assessment by Risk Type .............................................................. 56

List of Figures
Figure 1: Global Economic Growth (%) ................................................................................................ 9
Figure 2: Zimbabwe GDP Growth (%) ............................................................................................... 12
Figure 3 : Exchange Rate Developments (ZW$/US$) ......................................................................... 13
Figure 4: Annual Inflation (%) ............................................................................................................. 14
Figure 5: Banking Sector Soundness Index and Sub-Indices ............................................................ 17
Figure 6 : Banking Sector Net Capital Base (ZW$ Millions) and CAR (%) .................................... 19
Figure 7 : Banking Sector Income Components.................................................................................. 20
Figure 8: Trend in NPL Ratio ............................................................................................................... 21
Figure 9: Credit Stress Test: Increase in NPLs ................................................................................... 22
Figure 10: Default of top five largest borrowers ................................................................................. 22
Figure 11: Liquidity Stress Test Results .............................................................................................. 23
Figure 12: Prudential Liquidity Ratio ................................................................................................. 24
Figure 13: Interest Rate Risk Shocks ................................................................................................... 25
Figure 14: Foreign Exchange Risk Stress Test Results ...................................................................... 26
Figure 15: Zimbabwe Stock Exchange Volume/ Turnover ................................................................ 30
Figure 16: Top Ten Counters to Market Capitalisation ..................................................................... 31
Figure 17: All Share Index EWMA Relative Volatility (January 2018 –December 2020) .............. 32
Figure 18: Funds under Management as at 31 December 2020 ......................................................... 34
Figure 19: Total Assets by Class of Investment as at December 2020 .............................................. 39
Figure 20: Total Annual Payment Systems Transactions from 2009 - 2020..................................... 50
Figure 21: RTGS Annual Transactional Values and Volumes 2009-2020 ....................................... 51
Figure 22: Mobile Payments Interoperability Transaction October 2020-March 2021 ................. 53
Figure 23: Payment System Initiatives 2018-2020 .............................................................................. 54

Purpose of the Report
The financial stability report presents an analysis of the status and potential
risks to the financial system and an overall assessment of its stability for the
year ending December 2020. The report reflects a collective assessment of risks
to financial stability by all financial sector regulators in Zimbabwe constituting
the Multidisciplinary Financial Stability Committee (the Reserve Bank of
Zimbabwe, Deposit Protection Corporation, Insurance & Pensions
Commission and Securities & Exchange Commission).

The main purpose of the publication is to provide an update on the risks to
financial stability and the regulatory initiatives being undertaken to minimise
the impact of the identified risks.

GOVERNOR’S FOREWORD

1. This edition of our Financial Stability Report is presented amid the Covid-19
pandemic which has impacted all aspects of life. The global financial system
depicted relative resilience in 2020 despite the ongoing pandemic.
2. In response to the attendant challenges of the pandemic, governments and
central banks across the globe have implemented various measures to mitigate
the impact of the pandemic on global financial stability. These measures, which
include accommodative monetary policies and social safety nets, reduced the
impact of the pandemic on the global economy. This resulted in a global
economic contraction of 3.3% compared to an initial projection of 4.4% (World
Economic Outlook, March 2021).
3. Sub-Saharan Africa was not spared from the disruptive effects of the Covid-19
pandemic, with output contracting by 2.6% in 2020.
4. Notwithstanding the heightening inherent risks arising from the Covid-19
pandemic and other macroeconomic factors, the Zimbabwean banking sector
ended the year 2020 with adequate capital, satisfactory asset portfolios and
sustained profitability.
5. In order to mitigate the impact of the pandemic, the Bank reduced the Statutory
Reserve Ratio from 5% to 4.5%, reduced the Bank’s Policy rate from 35% to
25%, and relaxed the single borrower limit from 25% to 35%, among other
measures.
6. The banking sector maintained adequate capitalisation while liquidity buffers
in the sector also positively impacted on financial stability. The revised
capitalisation requirements effective in December 2021 are expected to build
greater loss absorbance capacity in the banking sector.
7. The insurance and pensions industry coped satisfactorily to shocks as
evidenced by high compliance with minimum capital requirements in the sector
in 2020.

8. The capital markets ended the year on a positive growth momentum on the
back of improving economic fundamentals.
9. During the review period, significant efforts in the financial sector were geared
towards promoting and accelerating digital financial services and building
financial resilience.
10. The Bank is continuing to enhance financial infrastructure in order to
strengthen credit risk management and promote inclusive access to credit. The
operationalization of the Collateral Registry is expected before the end of 2021.
11. In line with developing trends, financial institutions are expected to integrate
Environmental, Social and Governance (ESG) factors, such as climate change,
into their investment, lending and finance decisions.
12. The Bank has registered significant progress in the adoption of sustainability
standards in the banking sector under the Sustainability Standards and
Certification Initiative (SSCI). Promoting the existence of strong, dynamic and
resilient financial institutions is critical in ensuring sustainable economic
growth and development.
13. The pandemic has accelerated the adoption of digital financial services which
have supported the conduct of business transactions by the real economy. This
has resulted in digital payment transactions in the economy accounting for the
bulk of payments. Relevant stakeholders are urged to ensure higher levels of
digital financial literacy in the economy.
14. The financial sector regulatory authorities will continue to implement financial
stability enhancements by embracing international standards that promote
financial stability.
15. In the outlook, the expected economic recovery as well as price and exchange
rate stability in 2021 are expected to impact positively on financial stability.
16. The above measures, and the various initiatives in the other financial sector
segments, coupled with ongoing improvement both in capabilities and tools
for financial stability assessment, will ensure that the financial sector
continues to play its role of mobilising savings, providing credit in support of

production, risk mitigation, efficient allocation of resources and facilitating
delivery of products and services.
17. In conclusion, I would like to take this opportunity to thank all stakeholders
and in particular our fellow financial sector regulators for their continued
contribution to the maintenance of financial stability in Zimbabwe.

1. FINANCIAL STABILITY RISKS

1.1 The Covid-19 pandemic posed significant risk to financial stability in 2020
as governments across the globe imposed lockdown measures in attempts
to curb the spread of the virus with severe ramifications on economic
activity and financial conditions. The most affected sectors were mainly
those that are contact-intensive such as tourism.
1.2 As a consequence, the global economy is estimated to have contracted by
3.3% in 2020 (World Economic Outlook, April 2021) as shown in Figure 1
below.
Figure 1: Global Economic Growth (%)

Source: World Economic Outlook (January 2021)

Fiscal and Monetary Policy Interventions
1.3 The full extent of knock-on effects of the pandemic on the global financial
markets was mitigated by policy responses from governments and central
banks around the world. Globally, central bank relief measures included
lowering of interest rates and provision of liquidity assistance to the
banking sector, whilst fiscal authorities implemented stimulus packages in
the form of cash hand-outs, tax holidays and debt guarantees; strengthened
health care systems; and emergency food distribution. These policies
-6
-4
-2

Global
Advanced
EMDEs
Sub-Saharan

supported the flow of credit to the real economy and reduced the economic
decline.
1.4 During the second half of 2020, global production processes began to adapt
to the new operating environment and the policy interventions implemented
began to bear fruit. This saw global economic activity recovering and
investor confidence increasing, particularly towards the end of 2020.
1.5 In addition, the development and rollout of Covid-19 vaccines from late
2020 and accommodative policy measures are expected to drive global
economic recovery in 2021 and maintain financial stability.
1.6 For some Sub-Saharan African countries that were facing constrained fiscal
space, the pandemic and its containment measures worsened the situation.
The World Bank reported that in 2020, government debt in the region
increased to 70% of GDP from 57% at the end of 2019.
1.7 Economic performance in Sub-Saharan Africa contracted by 2.0% in 2020.
The region is, however, projected to grow by 3.4% in 2021 and 4% in 2022
on the back of re-opening of the economies. Underlying structural
constraints, such as power-supply shortages, as well as delays in the Covid19 vaccine rollout may, however, affect the attainment of the projected
growth.
1.8 Variations in economic structures in the region will also result in an uneven
recovery, with well diversified economies and those that are less fiscally
constrained registering higher growth rates. Debt sustainability concerns
may require fiscal consolidation, which, if prematurely implemented, is
likely to further soften the projected recovery.
1.9 The existence of a sovereign-bank nexus means that vulnerabilities that
could arise due to constrained fiscal positions may be transmitted to the
banking sector. This poses risks to financial stability in fiscally constrained
Sub-Saharan African countries in the outlook period.

1.10 Relief measures in Zimbabwe, which included fiscal allocation of a
stimulus package for productive sectors, monthly allowances to vulnerable
households, extension of the deadline for compliance with the revised
minimum capital levels from 31 December 2020 to 31 December 2021, as
well as downward review of statutory reserve requirements from 5% to
2.5%, mitigated the Covid-19 pandemic shock.
1.11 The easing of reserve requirements enabled banks to increase credit to the
productive sectors of the economy, while the liquidity assistance provided
much needed relief to ailing industries and restless households.
Expected Economic Rebound
1.12 Against the background of fiscal and central bank stimuli, as well as vaccine
roll-outs, global economic growth is expected to rise to 6% in 2021 and
4.4% in 2022. Positive economic growth is expected to increase corporate
and household incomes and improve debt servicing capacity of borrowers
thereby decreasing credit risk, leading to stronger banking sector balance
sheets.
1.13 The projected recovery in the Zimbabwean economy (7.4% in 2021), which
is expected to be driven by strong recovery in agriculture, mining,
electricity, construction, transport and communication as well as finance
and insurance, should lower financial stability risks [Fig 2]. The economic
recovery is also expected to result in formal employment creation and a rise
in incomes.
1.14 Higher household incomes are expected to increase the demand for
financial services boosting the sector’s performance and stability in 2021.
Considerable uncertainty which may impede the attainment of the projected
global economic growth arising from the infections waves occurring across
the world as well as emergence of new variants of the Covid-19 virus that

may militate against the efficacy of the currently available vaccines,
however, persist.
Figure 2: Zimbabwe GDP Growth (%)


Source: ZIMSTAT-MOFAD (2020)

1.15 Further, the rate of availability and efficacy of the vaccines in different
parts of the world will probably impact on production value chains thereby
leading to an uneven economic recovery pattern across the globe. An
accommodative policy environment is expected to play a crucial role in
supporting economic activity and mitigating against risks to the recovery.
Domestic Financial Stability Risks
1.16 In Zimbabwe, the pandemic came at a time when the country was also
dealing with climate shocks in the form of prolonged droughts and cyclonic
rainfall. The authorities implemented policies that were targeted at fostering
productive capacity, as well as price and exchange rate stability.

a. Exchange Rate Shocks
1.17 Foreign exchange related shocks, which included price volatility, were
mitigated by the introduction of a foreign currency auction system on 23
June 2020, which resulted in notable stabilisation of the Zimbabwe dollar
exchange rate in the third quarter of the year.
1.8
0.8
4.8
3.4
-6.0
-4.1
7.4
-8
-6
-4
-2

2020 est
2021 proj
GDP Growth (%)

1.18 The exchange rate depreciated from an average of ZW$32.35/US$1 in June
2020 until it stabilised as from August 2020 and remained relatively stable
in the range of ZW$81/US$1 to ZW$82/US$1 as at 31 December 2020.
Exchange rate stability is expected to be sustained in 2021 largely due to
the measures that the monetary authorities have taken to curb speculative
and rent seeking behaviour in the foreign exchange market. Risks to
financial stability arising from exchange rate volatility are, therefore,
expected to be low in the outlook period as shown in Figure 3 below.

Figure 3 : Exchange Rate Developments (ZW$/US$)

Source: RBZ (2021)

b. Inflation Risk
1.19 Inflation risk abated in 2020 as reflected by the decline in annual inflation
from 521.2% in 2019 to 348.6% by end of 2020. Fiscal consolidation,
coupled with monetary stabilization and monetary targeting framework
measures have resulted in notable stability in the pricing of goods and
services, particularly during the last quarter of 2020.
1.20 In 2021, price stability is expected to be maintained on the back of
continued foreign exchange stability as authorities continue to rein in

18-Jun-20
8-Jul-20
28-Jul-20
17-Aug-20
6-Sep-20
26-Sep-20
16-Oct-20
5-Nov-20
25-Nov-20
15-Dec-20
4-Jan-21

speculative behaviour. Inflation is projected to decline in the outlook
period.
1.21 Lower inflation [Fig 4] will provide the financial sector with a more
enabling operating environment which facilitates planning and appropriate
pricing of financial products and services.

Figure 4: Annual Inflation (%)

Source: ZIMSTAT (2021)

Monetary Developments
1.22 Broad money supply stood at ZW$204.92 billion as at December 2020,
compared to ZW$153.84 billion recorded as at 30 September 2020. The
growth reflected expansion in local currency transferable deposits, 68.66%;
time deposits, 42.84%; negotiable certificates of deposits (NCDs), 32.50%;
foreign currency deposits, 12.51%; and currency in circulation, 13.08%.
1.23 As at 31 December 2020, foreign currency deposits amounting to
ZW$103.73 billion, accounted for 51% of total deposits, while local
currency deposits and currency in circulation co-accounted for the balance
of the money stock (M3).

2018:01
2018:02
2018:03
2018:04
2018:05
2018:06
2018:07
2018:08
2018:09
2018:10
2018:11
2018:12
2019:01
2019:02
2019:03
2019:04
2019:05
2019:06
2019:07
2019:08
2019:09
2019:10
2019:11
2019:12
2020:01
2020:02
2020:03
2020:04
2020:05
2020:06
2020:07
2020:08
2020:09
2020:10
2020:11
2020:12
%

1.24 The local currency deposits, transferrable or demand deposits amounted to
ZW$88.66 billion (26.64%); time deposits, ZW$9.91 billion (2.01%); and
negotiable certificates of deposits, ZW$1.44 billion (0.59%). Notes and
coin in circulation stood at ZW$1.07 billion, as at end December 2020. The
ongoing implementation of the monetary targeting framework is expected
to contribute to price stability which is key to maintaining financial
stability.
1.25 Nominal lending rates quoted by banks ranged between 5% and 65%, as at
31 December 2020. Time deposit rates for 60-day and 90-day tenures
registered maximum averages of 10.33% and 9.46%, from 7.12% and
7.70% recorded in September 2020, respectively. Average maximum
savings deposit rates, however, decreased from 5.19% to 4.69%, during the
period under review.
1.26 The ongoing implementation of the monetary targeting framework is
expected to contribute to price stability which is key to maintaining
financial stability.
Macroeconomic Environment Heatmap
1.27 The overall risks to financial stability arising from the macroeconomic
environment for the review period were considered moderate. One major
risk to economic activity that may potentially affect financial stability
relates to uncertainties on the efficacy of the Covid-19 vaccines. The
stabilising effects of both the fiscal and monetary policies will promote the
attainment of the economic growth rates that are envisaged in the National
Development Strategy 1 (NDS1). A Heat map indicating this position is
shown in Table 1 below.

Table 1: Macroeconomic Environment Heat Map

2020 est
2021proj
Economic Activity





Sovereign Risk





Inflation





Exchange Rate




Global Economic Activity





Overall Risk












Less Risk
Very Low
Low
Moderate
High
Very High
Extreme
More Risk

2.
BANKING SECTOR SOUNDNESS

2.1 The banking sector reported adequate levels of capitalisation, satisfactory
asset quality, earnings and liquidity for the period ending December 2020.
2.2 Notwithstanding the heightening of inherent risks mainly arising from the
Covid-19 pandemic, the sector depicted resilience. Banks have adjusted
relatively well to the Covid-19 induced environment as shown by the
banking sector soundness1 index below:
Figure 5: Banking Sector Soundness Index and Sub-Indices

Source: RBZ (2021)
2.3 The Banking Sector Soundness Index (BSI) indicates that as at December
2020, there was an overall reduction in risks posed to the banking sector on
the back of a decline in risks posed to asset quality and capitalisation.
However, there were notable increases in risks to sensitivity to market risk,
earnings and liquidity. A detailed assessment of the various components is
contained in the sections below.

1 The derivation of the Banking Sector Soundness Index was presented in the June 2019 Financial Stability
Report and is currently based on commercial banks data.
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-18
Dec-18
Jun-19
Dec-19
Jun-20
Dec-20

0.05
0.1
0.15
0.2
0.25
Sep-13
May-14
Jan-15
Sep-15
May-16
Jan-17
Sep-17
May-18
Jan-19
Sep-19
May-20
Capital Adequacy
Asset quality
Earnings and profitability
Liquidity
Sensitivity to market risk

2.4 The performance of the five systemically important banking institutions (DSIBs) as at December 2020 was satisfactory. All the D-SIBs were profitable
and their profits accounted for 48.1% of total banking sector profits. D-SIBs
held 71.57% of total deposits and housed 75.53% of banking sector issued
loans.


Capitalisation
2.5 The sector’s net capital base increased five-fold, to ZW$53.18 billion as at
31 December 2020. The capital adequacy ratio (CAR) which represents

The BSI is mainly based on five CAMELS components, namely:
i.
Capital Adequacy;
ii.
Asset Quality;
iii.
Earnings and Profitability;
iv.
Liquidity; and
v.
Sensitivity to Market risk.
The data used in the BSI for Zimbabwe is compiled from Financial Soundness Indicators (FSIs) that are
available on a quarterly basis (currently based on commercial banks data). These are then transformed using
empirical normalization to fit the data within the range of 0 to 1. The following equation is used to normalize
the ratios:
Ii =
Xi−Xmin
Xmax−Xmin

Where:
Ii is the sub-index value at point i
Xi is each data point i
XMin is the minima among all the data points
XMax is the maxima among all the data points
Xi, 0 to 1 is the data point i normalized between 0 and 1
BOX 1: BANKING SECTOR SOUNDNESS INDEX (BSI)

extent of cushion against unexpected losses, also rose from 32.57% in
December 2019 to 34.62% as shown below.
Figure 6 : Banking Sector Net Capital Base (ZW$ Millions) and CAR (%)

Source: RBZ (2021)

Earnings Performance
2.6 All banking institutions recorded profits for the year ended 31 December
2020 with aggregate sector profits amounting to ZW$34.24 billion. The
cost-to-income ratio, however, increased from 59.05% as at December 2019
to 71.97% as at December 2020 mainly attributable to Covid-19 related
expenses. Earnings are expected to remain on an upward trend as the sector
continues to adjust to new operating conditions through effective risk
management systems and digital banking models. The contribution of noninterest income to total banking sector income has continued to strengthen
over the past few years [Fig 7] reflecting increasing diversification of
income sources.



0.0
1.0
2.0
3.0
4.0
5.0
6.0
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
Mar/16
Jun/16
Sep/16
Dec/16
Mar/17
Jun/17
Sep/17
Dec/17
Mar/18
Jun/18
Sep/18
Dec/18
Mar/19
Jun/19
Sep/19
Dec/19
Mar/20
Jun/20
Sep/20
Dec/20
Capital $ Millions
CAR (%)
Net Capital
CAR

Figure 7 : Banking Sector Income Components

Source: RBZ (2021)
2.7 Table 2 presents the banking sector’s major risks at an aggregate level and
assessment of the adequacy of risk management systems across the market
as at 31 December 2020.
Table 2:Banking Sector Risk Matrix as at 31 December 2020
Type of Risk
Level
of
Inherent Risk
Adequacy of Risk
Management
Systems
Overall
Composite
Risk
Direction of Overall
Composite Risk
Credit
Moderate
Acceptable
Moderate
Stable
Liquidity
Moderate
Acceptable
Moderate
Stable
Foreign Exchange
Moderate
Acceptable
Moderate
Stable
Interest Rate
Moderate
Acceptable
Moderate
Stable
Strategic Risk
Moderate
Acceptable
Moderate
Stable
Cyber Risk
Moderate
Acceptable
Moderate
Increasing
Operational Risk
High
Acceptable
Moderate
Increasing
Overall
Moderate
Acceptable
Moderate
Stable




-
10,000.00
20,000.00
30,000.00
40,000.00
50,000.00

0%
20%
40%
60%
80%
100%
Total Interest income
Total Non-interest income
Total Income

Credit Risk
2.8 Asset quality remained satisfactory with a non-performing loans (NPLs) to
total loans ratio of 0.31% as at 31 December 2020, down from 1.75% as at
31 December 2019.
2.9 The trend in the NPL ratio is shown in Figure 8 below. The sector also
implemented Covid-19 related relief measures on asset quality, and
enhanced credit risk management systems, particularly in light of IFRS 9
Expected Credit Losses (ECLs) classification and measurement
methodologies.
Figure 8: Trend in NPL Ratio

Source: RBZ, 2021
2.10 Credit risk stress test results showed that the banking sector was largely
susceptible to asset quality deterioration, at aggregate level. The results
indicate that when subjected to a minor credit shock of migration of NPLs
by 14%, the aggregate banking sector NPLs ratio would rise from 0.31% to
14.31%. Notwithstanding such a shock, the banking sector would remain
adequately capitalised. Further, banks are holding sufficient provisions to
meet any losses. A major shock of increase in NPLs by 42%, whose
0%
1%
2%
3%
4%
5%
6%
7%
8%
Jun-18
Dec-18
Jun-19
Dec-19
Jun-20
Dec-20

occurrence is very remote, may result in the NPLs ratio increasing to
42.31%. Figure 9 summarises the stress test results.

Figure 9: Credit Stress Test: Increase in NPLs

Source: RBZ (2021)
2.11 The credit concentration stress test, which captures the impact on a bank’s
capital of a default by its top borrowers, indicated that only three banks
were vulnerable to a minor shock, which is the default of a bank’s largest
borrower. One more bank was vulnerable to moderate and major shocks
representing the default of a bank’s top three and five borrowers,
respectively as shown on Figure 10 below.

Figure 10: Default of top five largest borrowers

Source: RBZ (2021)
Minor
(3 Bank)
Moderate
(4 Banks)
Major
(6 Banks)
No. of Banks with CAR < 12%
Minor
(3 Banks)
Moderate (4 Banks)
Major
(4 Banks)
No. of Banks with CAR<12%

2.12 Credit concentration is sufficiently mitigated on bank balance sheets
through liquidity contingency plans and other capital mobilisation
strategies.
Liquidity Risk
2.13 Most liquidity indicators showed relative stability between December 2019
and December 2020. The Banking Sector Soundness Index, however,
depicts a marginal increase in risks to liquidity reflected in a decline in the
liquid assets to short-term liabilities ratio for commercial banks over the
period under review.
2.14 Liquidity risk is expected to remain low due to the envisaged improvement
in the operating environment. Banks tend to reduce the transformation of
deposits into loans as part of a cautious approach to lending in order to
contain credit risk and liquidity risk.
2.15 The liquidity stress test results showed that the banking sector is resilient
to liquidity shocks as shown in Figure 11 below.
Figure 11: Liquidity Stress Test Results

Source: RBZ (2021)
2.16 The Reserve Bank continuously monitors the level of available liquid assets
against liquidity demanding liabilities within banks using the Prudential
Liquidity Ratio (PLR). During the period under review all banks had a PLR
above the regulatory minimum of 30% and the banking sector average was
Minor
(1 Bank)
Moderate
(3 Banks)
Major
(10 Banks)
No. of Iliquid Banks by Day 5

73.06%. Figure 12 below shows the PLR trend for the period March 2016
to December 2020.
Figure 12: Trend in the Prudential Liquidity Ratio

Source: RBZ (2021)
Market Risk
a. Interest Rate Risk
2.17 The interest rate risk exposure in the banking sector remained moderate, as
the balance sheets are dominated by banking book items and limited trading
activities. In addition, sources of funds for banks are predominantly retail
deposits which are relatively less interest rate sensitive, while re-pricing
assets are mainly loans and advances and treasury bills which have long
repricing cycles.
2.18 As at 31 December 2020 the banking sector had an overall asset sensitive
book, with a cumulative re-pricing gap of ZW$13.03 billion in the 1-365
days’ time bucket. The banking sector showed resilience to interest rate
risk shocks, with only three banking institutions being vulnerable to a major
shock as shown on Figure 13 below.

1/3/2016
1/6/2016
1/9/2016
1/12/2016
1/3/2017
1/6/2017
1/9/2017
1/12/2017
1/3/2018
1/6/2018
1/9/2018
1/12/2018
1/3/2019
1/6/2019
1/9/2019
1/12/2019
1/3/2020
1/6/2020
1/9/2020
1/12/2020
(%)

Figure 13: Interest Rate Risk Shocks

Source: RBZ (2021)
2.19 Interest rate risk is expected to remain moderate largely due to minimal
exposure to trading in interest rate sensitive instruments.

b. Foreign Exchange Risk
2.20 Foreign exchange risk is expected to continue to be moderate in 2021
largely due to the stability in the foreign exchange rate following the
introduction of the Foreign Exchange Auction System during the review
period. The Banking Sector Soundness Index, however, showed an increase
in risks to sensitivity to market risk attributable to the depreciation of the
local currency against major currencies over the period under review.
2.21 The banking sector had a negative net open position which was attributed
to foreign obligations such as payment of ICT systems licences, acquisition
of ICT infrastructure and legacy debts. The foreign currency assets
constituted 25.65% of the total assets whilst foreign liabilities constituted
53% of the total liabilities.
2.22 Stress test results show local currency volatility may have a marginal
impact on the banking sector capitalisation as shown on Figure 14 below.

Moderate
(1 Bank)
Major
(3 Banks)
No. of Banks with CAR<12%

Figure 14: Foreign Exchange Risk Stress Test Results

Source: RBZ (2021)

Strategic Risk
2.23 Banking institutions have robust processes to identify, quantify and mitigate
risks inherent in their strategic execution. Institutions activated and
reviewed their business continuity strategies and align them with the Covid19 pandemic operating environment.
2.24 Strategic risk in the sector is also heightened by competition from fintech
companies, which have the scope to disrupt the traditional banking business
models by offering cheaper and more consumer-focused financial products.
However, banks have since adopted strategies to collaborate with financial
technology companies (fintechs) so that they can leverage on new
technologies. Fintechs on the other hand would benefit from tapping into
the existing customer bases of traditional banks.

Cyber Risk
2.25 Increased usage of electronic payments and virtual office platforms exposed
the banking sector to elevated cyber risks, in the form of hacking, fraudulent
transactions and identity theft by third parties.
Minor
(4 Banks)
Moderate (4 Banks)
Major
(5 Banks)
No. of Banks with CAR<12%

2.26 In the meantime, banks have upgraded their ICT security systems to protect
themselves and their clients, through enhanced security measures such as
two-step authentication, among others.
2.27 A number of banks have instituted corresponding consumer education
programmes on the risks of transacting online in order to mitigate the
heightened level of cyber risks.

Operational Risk
2.28 The banking sector witnessed numerous shifts in focus and reprioritization
of operational and conduct risks in 2020 as institutions came to terms with
managing temporary closure of branches, self-isolation of staff, dispersed
workforces and managing working-from- home controls.
2.29 During the year ended 31 December 2020, the risk management systems
around the sector, operational procedures, controls and policies were
largely satisafactory.
2.30 The Bank will continue to monitor the adequacy of banks’ contingency
plans as well as other developments that may affect the operations of banks
with a view to give adequate guidance to the market to maintain sector
stability.

3.
CAPITAL MARKETS
3.1 The capital markets continued to play a critical role in economic growth
and development through providing infrastructural requirements to access
long term financing to the real sector.
3.2 The capital markets exhibited relative stability during the course of 2020
against the background of improving economic fundamentals and the
introduction of the Foreign Currency Auction System. The general
volatility on the stock exchange experienced during the first half of 2020
was largely attributable to the initial uncertainties surrounding exchange
rate policies introduced to neutralise foreign exchange risk.
3.3 As at December 2020, The number of licensed institutions under the
supervision of the Securities and Exchange Commission of Zimbabwe
(SECZ) had increased compared to December 2019 as indicated in Table 3
below
Table 3: Regulated institutions in the Capital Markets





Source: Securities and Exchange Commission of Zimbabwe (2021)

3.4 In an endeavour to increase investment diversity for both local and foreign
investors as well as improve the foreign direct investment into the market,
SECZ oversaw the establishment of the Victoria Falls Stock Exchange
(VFEX) by the Zimbabwe Stock Exchange (ZSE).
Type of institution

Securities Exchanges

Central Securities Depositories

Securities Dealing (Stockbroking) firms

Securities Investment (Asset) Management firms

Securities Custodial firms

Securities Transfer Secretaries firms

Securities Trustee firms

Securities Advisory firms

Condition and Performance of Securities Markets
3.5 On the equity market, the All Share and Top Ten indices recorded annual
gains of 1,046% and 733%, to end the year at 2,636.47 points and 1,671.47
points, respectively. In line with the stock market rebound, high trading
volumes and values on negotiated trades were witnessed on several counters
which included ZB, CBZ, Bindura and Zimre Holdings. Consequently,
equity turnover grew by 754% whilst trading volumes increased by 64% on
an annual basis.
3.6 The performance of the two securities exchanges as at December 2020 is
shown in the table below:
Table 4: Securities Exchanges Performance

Zimbabwe Stock Exchange
ZW$
ZSE Turnover
17,321,473,923
Traded Volume
3,735,809,255
Market Capitalisation
317,879,307,047
All Share Index
2,636.34
Top 10 Index
1,671.47
Number of Listed Companies

Financial Securities Exchange

ATP Turnover
57,251,889
ATP Traded Volume
1,595,785
ATP Market Capitalisation
2,199,810,527
Number of listed Companies

Source: Securities and Exchange Commission of Zimbabwe (2021)

3.7 The trend in turnover and volume developments during period under review
is reflected in the figure below.

Figure 15: Zimbabwe Stock Exchange Volume/ Turnover


Source: Zimbabwe Stock Exchange (2021)
3.8
The firming up of the equities indices resulted in the market capitalization
increasing by 968% to ZW$317.88 billion as at December 2020,
notwithstanding a decrease in the number of listed entities by 15%. The
table below summarises the overall performance in the Equities market
from 2018.
Table 5: Equity Markets Performance Summary
Zimbabwe Stock Exchange
2020 (ZW$)
2019 (ZW$)
2018(ZW$)
% Change
ZSE Turnover
17,321,473,923
2,028,580,517
926,309,643
754%
Traded Volume
3,735,809,255
2,283,747,926
2,517,356,999
64%
Market Capitalisation
317,879,307,047
29,767,094,449
19,424,406,159
968%
All Share Index
2,636.34
230.08
146.24
1046%
Top 10 Index
1,671.47
200.56
-
733%
No of Listed Companies

-15%
Source: Zimbabwe Stock Exchange (2021)

3.9 The suspension of dual listed companies on the ZSE on 26 June 2020 and
the launch of the Victoria Falls Stock Exchange (VFEX) on 23 October
2020 reshaped the composition of the indices. As at the end of 2020, only
-

1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
-

1,000
1,200
Feb-15
Apr-15
Jun-15
Aug-15
Oct-15
Dec-15
Feb-16
Apr-16
Jun-16
Aug-16
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
Feb-18
Apr-18
Jun-18
Aug-18
Oct-18
Dec-18
Feb-19
Apr-19
Jun-19
Aug-19
Oct-19
Dec-19
Feb-20
Apr-20
Jun-20
Aug-20
Oct-20
Dec-20
Millions
Volume
Millions
ZSE Trading Turnover/ Volume
Volume
Turnover

Seedco International had listed on the VFEX and the other two counters
namely Old Mutual and PPC remained temporarily suspended from trading.
3.10 The top ten counters’ contribution to the total market capitalisation declined
from 73.4% in 2019 to 68.5% in 2020. The figure below summarises the
composition of the top ten counters on the ZSE between 2019 and 2020.
Figure 16: Top Ten Counters to Market Capitalisation

Source: Zimbabwe Stock Exchange (2021)
a) ZSE All Share Index (ALSI)
3.11 The ALSI volatility, which was calculated using Industrial Indices from
January 2018 to December 2020, was estimated at 5.461% as of 31
December 2020, using a smoothing constant of 0.97. The major spike on
returns in April 2020 was attributed to socio-economic changes which saw
the equity market prices surge in response to rising demand as investors
sought to hedge against inflation. Naturally, uncertainties in the
macroeconomic environment continued to inform the performance of the
market. Trends in the ZSE ALSI are shown in the figure below.




Top Ten Market Cap %
DELTA
CASSAVA
ECONET
OLD MUTUAL
INNSCOR
PADENGA
BAT
SEEDCO INTL
SIMBISA
OK ZIM

(73.41%)
CBZ
DELTA
ECONET
INNSCOR
HIPPO
CASSAVA
PADENGA
BAT
OK ZIM
FBC

(68.53%)

Figure 17: All Share Index EWMA Relative Volatility (January 2018 –December 2020)

Source: Zimbabwe Stock Exchange (2021)
3.12 The FINSEC Alternative Trading Platform (ATP) market capitalisation
closed at $2.19 billion in December 2020, reflecting a significant growth of
121% from ZW$996 million in 2019. Turnover grew by 15% (ZW$57.5
million) while the volume of shares traded fell by 84% to 1.6 million from
9.8 million in the previous year. Table 6 below summarises the overall
performance of the FINSEC ATP.
Table 6: FINSEC ATP Performance Summary
Financial Securities Exchange

% change
ATP Turnover (ZW$)
57,251,889
49,907,564
5,118,548
15%
ATP Traded Volume
1,595,785
9,886,188
1,682,086
-84%
ATP Market Capitalisation (ZW$)
2,199,810,527
996,140,616
410,908,004
121%
Number of listed Companies

Source: Securities and Exchanges Commission (2021)
b) Investment Management
3.13 Funds under Management (FUM) for the industry as at 31 December 2020
stood at ZW$156.5 billion representing an increase of 9.40 times from
ZW$15.05 billion reported as at 31 December 2019. The increase was
mainly attributed to properties asset revaluations following the conversion
of United States Dollar (US$) denominated assets and equities.
Sep-17
Apr-18
Oct-18
May-19
Dec-19
Jun-20
Jan-21
Jul-21-20.000%
0.000%
20.000%
40.000%
60.000%
80.000%
100.000%
0.00
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
Jun-17
Dec-17
Jul-18
Feb-19
Aug-19
Mar-20
Sep-20
Apr-21
ALSI Points
MoM
All Share Index
All Share
Returns ^2

Table 7 : Asset Management Summary (December 2020)
Asset Management

Change
Funds under Management (Total FUM)
(ZW$)
156,539,539,068
15,050,708,208
7,159,044,293
940.1%
Collective Investments Schemes (CIS) (ZW$)
730,246,168
167,023,446
168,176,773
337.2%
CIS / Total Market FUM
0.5%
1.1%
2.3%
-58.0%
Number of Players

15.8%
**Capital Adequacy Compliance (%)
72.2%
77.8%
93.8%
-7.1%
**Firms' Positive Earnings (%)
89.5%
100.0%
62.5%
-10.5%





Source: Zimbabwe Stock Exchange (2021)
**Data as at 30 September 2020
3.14 Meanwhile, the sector’s profitability and capital adequacy ratios declined
over the review period to 89.5% and 72.2% respectively as a result of the
risk adjusted capital framework adopted by the Securities and Exchange
Commission which takes into account the assets volatility and requisite risk
exposure.
3.15 Overall assets under management went up by 337.2% while a decrease of
58% was recorded for collective investment schemes (CIS) from 1.1% to
0.5% of the total funds under management. Generally, there is limited asset
diversity in assets invested in CIS funds which tends to limit investments
and permutations. The trend in funds under management over the last few
years is shown in Figure 18 below.

Figure 18: Funds under Management as at 31 December 2020

Source: Securities and Exchange Commission (2021)

Capital Markets Risks and Risk Management Measures
3.16 Notwithstanding risks posed by the Covid-19 scourge, the overall
profitability of the capital markets in respect of securities dealing firms,
transfer secretaries and exchanges slightly improved on the back of growth
on the Zimbabwe Stock Exchange.
3.17 Securities Market Intermediaries adopted comprehensive measures to
mitigate the spread of Covid-19 and ensure availability of uninterrupted
financial services. Measures included enhanced usage of technology,
encouraging customers to use online channels, reassessing business
continuity plans, and enhancing the monitoring frequency of key risk areas
such as credit, capital market and foreign exchange exposures etc.
3.18 Table 8 below presents a summary of the risks to financial stability arising
from the macroeconomic environment and the capital markets as well as
various mitigatory measures.

-

BILLIONS

Table 8: Summary of Key Risks to Capital Markets and Risk Mitigation Measures
Top Risks Identified
Description
Likely Impact
Increase in Domestic Inflation
The risk of increasing domestic inflation necessitated by
informal sector prices linked to parallel markets rates on
retail and commercial goods.
Medium
Slowdown in Domestic Growth
The risk of slowed national growth due to the Covid-19
induced restrictions and challenges which may affect the
growth projections and expectations in fulfilling national
agenda.
Medium
Volatility in Property and Equity
Prices
The risk of increasing volatility on the equity and property
markets as investors hedge against inflation and foreign
exchange movements on the local currency
Medium
Foreign Exchange Risk
The risk of the currency depreciation on the Zimbabwean
dollar against other currencies in the world and region
which will increase costs of raw materials and increased
demand for foreign currency by the local entities.
Medium
Interest Rate Risk
Increasing interest rate risk fluctuations due to the
inflationary pressures as instruments reprice over time
Low
Geopolitical Risk
The risk emanating from political instability within the
country from political and civic rights groups and Islamic
insurgents in the region (Mozambique) which directly
affects foreign direct investments
Medium
Widening fiscal deficit
The possible risk emanating from fiscal deficit caused by
the supplementary budgets induced by Covid-19 stimulus
packages.
Medium High
Deterioration of household
savings
The risk of deterioration of household savings as the nation
grapples with Covid-19 induced restrictions to grow
business.
Medium Low
Slowdown in Corporate Sector
Growth
The risk emanating from the Covid-19 challenges to grow
the domestic corporate sector due to travel and movement
restrictions leading to shortages and price increases on
consumers
Medium

1=Low, 2=Medium Low, 3=Medium, 4=Medium High, 5=High

4.
INSURANCE AND PENSIONS INDUSTRY
4.1 The insurance and pensions sector continued to positively contribute to
economic growth through its mechanism of risk transfer and the
intermediation role across the economy.
4.2 The sector remained largely sound and resilient despite the difficult
operating environment while the outlook period was considered stable.
Insurance Sector
a) Industry Architecture
4.3 As at 31 December 2020, the insurance industry was made up of 84
registered players excluding agents as shown in the table below:
Table 9 : Insurance Sector Infrastructure as at December 2020
Class of Business
Number of Registered Players
Life Assurance

Funeral Assurance

Non-life Insurers

Non-life Reinsurers

Composite Reinsurers

Insurance Brokers

Reinsurance Brokers

Total

Source: Insurance and Pensions Commission (2021)

b) Performance and Financial Condition
4.4 Despite the challenging economic environment, the industry reported 580%
growth in premium income as shown in the table below:

Table 10 : Insurance Sector Premium Income (ZW$ Thousands)
Class of Business
31 Dec 2020
31 Dec 2019
Growth
Short term Insurers
9, 110, 000
1,370, 000
565%
Short term Reinsurers
5, 300,000
664, 900
697%
Life Assurers
3, 650, 000
596, 930
511%
Life Re-assurers
87, 530
12, 544
598%
Funeral Assurers
61,110
34,560
77%
Total Gross Premiums
18, 286, 640
2,678,934
580%
Source: Insurance and Pensions Commission (2021)

c)
Industry Assets
4.5 The insurance industry assets and liabilities stood at ZW$49.42 billion and
ZW$20.02 billion respectively as at 31 December 2020 as shown below:

Table 11 : Insurance Industry Assets and Liabilities (ZW$ Thousands)

Short
Term
Reinsurers
Life Assurers
Life Reassurers
Funeral
Assurers
Insurance
Brokers
Reinsurance
Brokers
Total
Non-Current
Assets
3,990,880
2,796,740
28,756,024

779,747
17,800
9,010
36,350,201
Technical
Assets
320,110
316,620

636,730
Current Assets
4,558,400
3,290,000
3,843,541
641, 269
88,151
2,330
7,910
12,431,601
Total
8,869,390
6,403,360
32,599,565
641, 269
867,898
20,130
16,920
49,418,532









Equity
4,202,140
3, 224, 502
17,025,655
2, 153, 743
528,209
418, 617
9,540
21,765,544
Total Liabilities
242,710
2, 830, 143
15,573,800
523, 235
339,689
514, 660
7.380
20,024,244









Risk Retention
Ratio
42.81%
64.02%
97,95%
65,75%
100%



Expense Ratio
48.87%
24.10%
29,22%
16,00%
64.62%



Source: Insurance and Pensions Commission (2021)

d)
Capitalisation Levels
4.6 A total of 74 out of the 84 insurance entities were compliant with the new
minimum capital requirements as at 31 December 2020, as shown in the
table below:

Table 12 : Insurance Sector Minimum Capital Requirements Compliance

Number of Compliant Entities
Average Compliance (%)
Life Companies
10 out of 12
83%
Life reassures
4 out of 4
100%
Non-Life Companies
18 out of 18
100%
Non-Reinsurers
4 out of 4
100%
Funeral Assurers
3 out of 8
38%
Insurance Brokers
28 out of 31
94%
Reinsurance brokers
7 out of 7
100%
Source: Insurance and Pensions Commission (2021)

Pensions Sector
a)
Pensions Industry Infrastructure
4.7 The number of registered pension funds was 967 with a total of 881 330
members as at 31 December 2020. Of the registered funds, 592, constituting
about 61.2% were active whilst 38.8% were inactive funds. The high
number of inactive funds was largely attributed to viability challenges of
sponsoring employers which was worsened by the Covid-19 pandemic.
The pandemic has seen some funds applying for suspension of contributions
and paid-up status.

b) Performance and Financial Condition
4.8 The industry assets were valued at ZW$110.24 billion, having increased in
nominal terms by 273.06% from ZW$29.55 billion reported as at 31
December 2019. In real terms, the asset base declined by 24% from US$1.8
billion as at 31 December 2019 to US$1.35 billion as at 31 December 2020.
4.9 The breakdown of assets by asset class as at 31 December 2020 is shown
below:

Figure 19: Total Assets by Class of Investment as at December 2020

Source: Insurance and Pensions Commission (2021)

4.10 As shown in the figure above, investment property constituted 47% of the
pensions industry assets, whilst equities were 34%. This is on account of
the repricing of these two asset classes which is faster than the other classes.
4.11 Total income for the 12 months ended 31 December 2020 amounted to
$79.2 billion. The breakdown of income, expenditure and the resulting
surplus for the period is shown in the table below.
Table 13: Financial performance of the Pensions Industry
Indicator
31 December 2020
31 December 2019
Total Contributions (ZW$ billions)
5.2
0. 69
Investment Income (ZW$ billions)
71.54
8.7
Total Income (ZW$ billions)
79.2
2.69
Total Benefits Incurred (ZW$ billions)
3.30
9.6
Total Expenditure (ZW$ billions)
5.0
0.56
Income Surplus (Deficit) (ZW$ billions)
74.20
8.99
Expenses/Contributions
32.83%
26.5%
Expenses/Total Income
2.18%
1.91%
Source: Insurance and Pensions Commission (2021)

4.12 The industry reported a surplus of ZW$74.20 billion for the 12 months
ended 31 December 2020 compared to a surplus of ZW$8.99 billion in the
same period in 2019. The surplus was mainly driven by investment income
totalling ZW$71.54 billion. Investment income was mainly driven by fair
value gains due to property revaluations and a bull run on the Zimbabwe
Stock Exchange.

Risks to the Insurance and Pensions Sectors
a. Economic Risk
4.13 Economic risk was considered moderate due to the real growth that was
recorded in the sector as a result of the relative stability in the economy.
Despite the forecasted decreases in Gross Premiums Written due to the
effects of Covid-19, the insurance industry recorded a nominal positive
growth rate of 586%.

b. Reputational Risk
4.14 Following the currency reforms implemented in 2019, payment of benefits
in local currency on contracts that had been made in foreign currency
heightened the industry’s reputational risk. The expectation of
policyholders and pension scheme members was to receive their benefits in
foreign currency notwithstanding the currency reforms. This further dented
confidence in the sector which saw some products becoming irrelevant and
some members requesting full commutations of their accumulations.
4.15 To address the potential loss of value from the 2019 currency reforms, the
Insurance and Pensions Commission issued a Guideline to the Insurance
and Pensions Industry on Adjusting Insurance and Pension Values in
Response to Currency Reforms which has largely restored public
confidence reflected by increasing pension values.

c. Market Risk
4.16 Market risk was considered moderate to high on account of asset-liability
mismatches due to unavailability of value-preserving short-term investment
assets which match the liability profiles of insurance companies and
pension funds. For effective asset liability matching, the assets must match
the nature, tenure, and currency of the liabilities. Following approval for
general public to purchase insurance and pension products in foreign
currency using free funds, there is need for asset classes that match the
currency of liabilities. Further, the forex market should be deep and liquid
enough to absorb the forex premiums and contributions to allow orderly
exits should the need arise. It is envisaged that the risk will be mitigated
going forward as activity on the Victoria Falls Stock Exchange increases.

d. Operational Risk
4.17 Operational risk was considered high on account of the threat to business
continuity in the Covid-19 environment. In addition, the increasing Covid19 infection and deaths rates at the end of 2020 had direct impact on claims,
threatening viability of some funeral assurers.
4.18 The extensive usage of digital platforms by both the customers and
employers across the sector has increased the level of cyber security threats.
4.19 Inter-company investments pose a risk to the operations of insurance
companies thus contributing to contagion risk. In the funeral insurance
sector, there is a direct relationship between the funeral assurance
companies and the funeral service providers. Although the exact figure of
inter-company exposure is not available for the whole industry, information
from the inspections conducted during the review period reflects that
intercompany exposure in the insurance industry is low.

e. Regulatory and Compliance Risk
4.20 Regulatory and compliance risk was considered low on account of
improvements in compliance with the minimum capital requirements
(MCR) with 87% of all regulated entities being compliant as at 31
December 2020.
Table 14: Compliance with Minimum Capital Requirements as at 31 December 2020
Class of Business
MCR
(ZW$
Millions)
No. of Entities
No. of Compliant
Co.
%
Compliance
Status
Insurance Brokers
1.5

88%
Reinsurance Brokers
1.5

100%
Funeral Companies
62.5

38%
Short-term Insurers
37.5

100%
Reinsurance

100%
Life Assurers

83%
Micro-insurers
4.5

100%
Average Compliance
level



87%
Source: Insurance and Pensions Commission (2021)

4.21 Compliance with prescribed asset requirements was, however, low at an
average of 3.69% for short-term insurers, 2.43% for life assurers and 6.41
% for pension funds against compliance thresholds of 10%, 15% and 20%
respectively. The low compliance levels are on account of the adverse
impact of inflation on fixed income securities. Insurers and pension funds
are shunning value eroding assets, which saw investment portfolios skewed
towards investment property and listed equity. This is compounded by
memories of 2009 loss of value and need for compensation after Justice
Smith loss of value investigation.
4.22 The above scenario has led to concentration of investments in few asset
classes which impacts the institutions’ portfolio diversification strategies,
while prospects for Government and other issuers of paper to mobilise
resources from institutional investors become limited.

4.23 To ensure compliance with prescribed asset requirements, the Commission
has widened the framework for prescribed assets to include alternative
investments such as private equity. Engagements are also ongoing with the
industry and Government in an effort to come up with value preserving
instruments which are attractive to the industry.

f. Liquidity Risk
4.24 Liquidity risk was considered moderate with 46.83% of total assets in
investment property. The concentration of assets in investment property is
worsened by growth in contribution arrears, suspension in contributions and
funds being in paid up status. The risk is, however, unlikely to pose
significant threat to the financial sector stability.

g. Credit Risk
4.25 Credit risk was considered moderate due to sponsoring employers failing to
pay pension contributions on time and to adhere to agreed payment plans.
4.26 In the insurance sector, players have experienced significant premium
debtors which presents the risk that some companies may fail to realise the
premiums. Insurers may then fail to honour claims when they fall due as
premiums remain uncollected thereby eating into reserves and depleting
their insurance pools.

Table 15: Insurance and Pensions Sector Risk Matrix
Risk Type
Risk Level
Risk Direction
Economic Risk
Moderate
Stable
Operational Risk
High
High
Regulatory and Compliance Risk
Moderate
Stable
Liquidity Risk
Moderate
Stable
Credit Risk
Moderate
Stable

1=Low, 2=Moderate Low, 3 = Moderate, 4=Moderate High, 5=High

Risk Mitigatory Measures
4.27 The following mitigatory measures were implemented to manage the risks
identified as threats to the insurance and pensions sector during the review
period:
a.
Government bailout package (ZW$75 million allocated in 2020
National Budget);
b.
Issued SI 280 of 2020 that allows payment of insurance premiums and
pensions and settlement of benefits in US$;
c.
Issued Guidance Paper on Currency Reforms to ensure equitable
allocation of revaluation gains following the 2019 Currency Reforms;
d.
Reviewed Framework for Prescribed Assets to include private equity,
hybrid instruments, other alternative investments and Public–Private
Partnerships (PPPs);
e.
Industry challenged to issue innovative products and offer promotions
that encourage clients to continue paying premiums;
f.
Use of reinsurance especially for the funeral sector which has long
shunned reinsurance arrangements;

g.
Encourage mergers and takeovers for entities with higher risk of not
meeting the minimum capital requirements; and
h.
Issuance of inflation-indexed instruments.

4.28 IPEC continues to monitor risks in the insurance and pensions industry and
to provide guidance on mitigation of the risks while tapping into valuable
lessons from fellow regulators locally and internationally.
Regulatory Developments
4.29 The commission registered the following regulatory developments:
a.
Minimum Capital Requirements – Issued S.I. 59 of 2020 on MCRs.
b.
Risk-Based Capitalisation (ZICARP) – progressing well
c.
Foreign-denominated policies – issued S.I. 280 of 2020 permitting
writing of forex business by insurers and pension funds
d.
Ongoing Review of the Acts – the Insurance Act, IPEC Act and the
Pensions & Provident Funds Act.
e.
Issuance and enforcement of Guideline on Currency Reforms – S.I. 69
of 2020.
f.
Issued Circular 26 of 2020 IAS 29 (Financial Reporting in
hyperinflationary economies
g.
Issued Risk Management and Corporate Governance Guidelines for
the Pensions Industry (Circular 11 of 2020)

5.
DEPOSIT PROTECTION SYSTEM

5.1 Effective deposit protection is an important facet of any financial system
safety net, promoting public confidence in the sector.

Deposit Protection Corporation Cover Level

5.2 As at 31 December 2020, 95.5% of the banking sector’s depositor accounts
were fully covered at the cover level of ZW$10,000 per depositor per bank.
This is in line with the Public Policy Objectives of ensuring that at least
90% of the depositors are fully covered.
5.3 The deposit insurance coverage for the conventional banking institutions is
reflected in Table 16 below:
Table 16: Deposit Insurance Coverage for Conventional Banking Institutions
Item
December 2020
Percentage
Total Number of Deposit Accounts
5,294,740
100%
Total Number of Deposit Accounts Fully Covered.
5,058,088
95.5%
Total Number of Deposit Accounts Partially Covered.
236,652
4.5%
Value of Deposits in Fully Covered Accounts
ZW$2.9 billion
3.2%
Value of Deposits in Partially Covered Accounts.
ZW$87.7 billion
96.8%
Total Value of Insured Deposits
ZW$5.3 billion
5.8%
Total value of deposits
ZW$90.6 billion
100%
Source: Depositors Protection Corporation (2021)

5.4 At the cover level of ZW$500 per depositor per institution, 96.2% of the
deposit-taking microfinance institutions (DTMFIs) depositors were fully
covered as shown in Table 17 below:

Table 17 : Deposit Protection Cover for DTMFIs as at 31 December 2020
Item
December 2020
Percentage
Total Number of Deposit Accounts
150,989
100%
Total Number of Deposit Accounts Fully Covered.
145,190
96.2%
Total Number of Deposit Accounts Partially Covered.
5,799
3.8%
Value of Deposits in Fully Covered Accounts
ZW$2.9 million
1.2%
Value of Deposits in Partially Covered Accounts.
ZW$230.6 million
98.8%
Total Value of Insured Deposits
ZW$5.8 million
2.5%
Total Value of Deposits
ZW$233.5 million
100%
Source: Depositors Protection Corporation (2021)


Risks to the Deposit Protection Corporation Fund
5.5 The DPC Fund is inherently exposed to funding and investment risk.
5.6 Premiums collected by the Corporation are mainly invested on the money
market in local currency instruments. Depreciation of the Zimbabwean
dollar against the United States Dollar and the high inflation environment
have the potential of diminishing the value of the Deposit Protection Fund.
5.7 The other risks are outlined in the table below.
Table 18: Risks to the Financial Safety Net
Type of Risk
Level of
Inherent
Risk
Risk Mitigants
Quality Risk rating
Residual
Risk
Trend of Risk
Macroeconomic Risk

Covid-19 induced supply chain
disruptions

inflationary pressures,

low aggregate demand,

low production and

global economic risk.
High
Low
vaccination to achieve herd immunity
ZW$18 billion fiscal social support to business &
individuals
Restrict money supply growth to below 22.5% per
quarter.
Funding of agricultural productivity
High
Stable
Covid-19 Pandemic
High death and hospitalisation rates.
Covid-19 induced supply chain
disruptions & economic activity.
Reallocation of resources from
other development programmes

High
High
Lockdowns to restrict spread of disease
Encourage telecommuting at work places
vaccination of at least 60% of the population to
achieve herd immunity
limited opening of boarders for commerce
High
Moderate
Inflation Risk
ZW$ prices indexed at depreciating
parallel market rates
High government and local
authority service charges
High fuel and electricity charges
High
Moderate
Allocation of foreign currency on the auction system
is key in maintaining a stable exchange rate and
monetary stability.
Restrict money supply growth to below 22.5% per
quarter.

Moderate

Stable

Hazard risks
Climate Change & Global Warming
High
Low
Develop climate proof production systems e.g.
High
Increasing

Type of Risk
Level of
Inherent
Risk
Risk Mitigants
Quality Risk rating
Residual
Risk
Trend of Risk
Cyclones, earthquakes and droughts
Hazards materialises as credit and
operational
risks
to
financial
institutions.

irrigation in agriculture.
Reduction in the emission of greenhouse gases.
incorporate
hazard
risks
in
Enterprise
Risk
Management and financial sector resilience\ stress
tests frameworks.
Strengthening Civil Disaster Response units
Operational Risk
Effectiveness of management
controls in era of telecommuting
Disruptions to business processes
due to power and ICT failures
People risks due to high cost of
living against depressed wages
Moderate
Moderate
Telecommuting policies and procedures.
Importation of power and installation of solar based
power systems
Continuous review of wages and salaries and
offering of non-financial benefits

Moderate
Stable
Cyber Risk
Accelerated Digitisation for
financial services offerings.
digital platforms exposed to cybercrimes such as card cloning, pin
hacking, and sophisticated IT
viruses
High
Moderate
promulgation of cyber security bill
upgrade of cyber security systems
public or client education campaigns
client electronic notifications or messaging warning
of cyber-attacks.
High
increasing


KEY

Green
- Level of risk is considered minor
Lime
- Level of risk is considered low
Yellow - Level of risk is considered moderate
Orange- Level of risk is considered high
Red
- Level of risk is considered extreme
TREND
Green
- Level of risk is expected to decrease in the next 12 Months
Amber - Level of Risk is expected to remain stable in the next 12 Months
Red
- Level of risk is expected to increase in the next 12 months.


Risk Mitigation
a. Adequate Funding:
5.8 Adequacy of the DPC Fund is of paramount importance in enhancing the
Corporation’s operational readiness to pay depositors in the event of
occurrence of a compensating event. At ZW$134.9 million as of 31
December 2020, the DPC Fund was inadequate to cover an exposure of
ZW$166.9 million to the eight (8) contributory institutions (CIs), including
mostly DTMFIs, on the watch list category.
5.9 With effect from 1 January 2021, the Corporation reviewed upwards the
premium rate from 0.2% to 0.3% per annum, as one of the strategies to close
the funding gap.

b. Protection of FCA deposits
5.10 The DPC is liaising with stakeholders for protection of FCA deposits which
have remained uncovered by the Deposit Protection Scheme (DPS) since
January 2019. As at 31 December 2020, gross FCA deposits were US$1.6
billion or ZW$130.9 billion at the prevailing rate of ZW$81.79/US$1 and
accounted for 55.1% of the combined gross ZW$ and converted FCA
deposits of ZW$237.7 billion in the banking sector.
5.11 Extension of deposit protection to FCA Deposits, which is under
consideration is expected to help to boost depositor confidence and promote
overall financial stability.
c. Investment Diversification:
5.12 The Corporation is actively diversifying its investment portfolio to hedge
against inflation as well as improve the rate of return on investment.

6.
FINANCIAL MARKETS INFRASTRUCTURE
6.1 In 2020, the Reserve Bank continued to advance the development of the
payment, clearing and settlement sector with efforts primarily geared
towards promoting and accelerating the digital financial services and
building financial resilience.
6.2 Notably, the sector registered significant investment in the information and
communication technology resulting in achievement of a strategic fit of
90% digital payment transactions in the economy.
6.3 The national payment system is well positioned to deal with some of the
challenges posed by the Covid-19 pandemic.
Payment Systems Transactional Activities
6.4 Total value of national payment systems transactions increased 5.43 times
to ZW$2.503 billion in 2020 from to ZW$389 billion in 2019, while the
volumes decreased by 10% to 1.9 billion in 2020 from 2.1 billion in 2019
transactions as shown in Figure 20 below.
Figure 20: Total Annual Payment Systems Transactions from 2009 - 2020

Source: RBZ(2021)
6.5 There are notable increases in transaction volumes, over the last few years
as reflected above. The current systems have capacity to handle further
increases in transactions and remain stable.
0.0
0.5
1.0
1.5
2.0
2.5
-
50.00
100.00
150.00
200.00
250.00
300.00
350.00
400.00

Volumes in Billions
Vlaues in ZWL Billions
VALUES LHS
VOLUMES RHS

6.6 The Bank monitors payment systems providers and participants on an
ongoing basis to ensure systems have sufficient capacity to cater for
transaction volumes growth.
6.7 Further, the Bank monitors growth in POS and Mobile transactions to
ensure that the related collateral is updated timeously and adequately to
manage systemic and credit risks.
6.8 The management of settlement and liquidity risks in the clearing and
settlement schemes was found to be satisfactory to maintain safety and
stability of the payment systems.
6.9 Over the review period, electronic money on mobile money platforms was
noted to be adequately aligned to the bank balances at the participating
banks. In this regard, real time online monitoring of systems continued
smoothly both at banks and mobile money systems.
6.10 The Real Time Gross Settlement System (RTGS) is particularly critical for
large value, time critical payments between system participants, other retail
payment systems and central securities depositories. Stability of the system
is critical as the system manages a greater part of the transactions. The Bank
will continue to encourage channelling of large value transactions through
this system, which is credit-push based, to manage systemic risks.
6.11 The RTGS annual transactional values and volumes are shown in Figure 21
below.
Figure 21: RTGS Annual Transactional Values and Volumes 2009-2020

Source: RBZ(2021)
-

VOLUMES IN MILLIONS
VALUES IN BILLIONS
Values
Volume

6.12 The Large Value Payment, Clearing and Settlement Systems - RTGS and
Central Securities Depository (CSD) - maintained a high level of
availability of 99% during the year under review with few network
connectivity challenges experienced.
6.13 Meanwhile, the Bank has engaged the CDS system supplier on a required
upgrade of the platform to ensure the flawless processing of transactions
and system availability at times.
6.14 RTGS and CSD systems are financial market infrastructures through which
the Bank implements monetary policy and provides liquidity to the financial
system. Against this background, continuous upgrades are critical in
ensuring financial stability and upholding the public interest objectives of
safety and soundness of payment infrastructure.

Interoperability
6.15 All players including mobile money entities are connected to the
Zimswitch platform effective 15th of August 2020, in line with the Banking
(Mobile
Transmission,
Mobile
Banking
and
Mobile
Money
Interoperability) Regulations, Statutory Instrument (S.I.) 80 of 2020. The
interoperability has enhanced convenience to the market and reduced
transactional costs through efficiency and shared infrastructure.
6.16 Resultantly, the value of mobile interoperability transactions increased
from ZW$400 million in October 2020 to ZW$1.033 billion in December
2020 as shown in Figure 22 below. Going forward the transaction values
and volumes are expected to maintain the growth trajectory in 2021.

Figure 22: Mobile Payments Interoperability Transaction October 2020-March 2021

Source: RBZ(2021)

6.17 As the transaction volumes increase in 2021 the related exposures, required
collateral, settlement and systemic risk are also expected to grow in
sympathy. As such the Bank will continue to monitor the collateral
management system in line with the increased exposures to ensure payment
systems stability.
New Payment Systems, Services and Delivery Channels
6.18 The growth of payment systems providers and participants as well as
related access devices and channels is critical for stability and competition
which enhance consumer protection and market conduct issues.
6.19 In this regard the Bank has continued to strengthen the approval and
licensing requirements as well as the due diligence processes to ensure that,
no risk is imported into the financial services sector through the payment
systems. The Bank assessed and approved 21 innovative products during
the period under review. These were mainly aimed at meeting the increasing
demand and change in consumer tastes which include mobile banking, card
and enhancements of use cases of existing electronic products among others
as indicated by Figure 23 below.
-

-
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
Oct-20
Nov-20
Dec-20
Jan-21
Feb-21
Mar-21
Volumes in Thousands
Values in Billions
Incoming Values LHS
Outgoing Values LHS
Incoming Vol RHS
Outgoing Vol RHS

Figure 23: Payment System Initiatives 2018-2020

Source: RBZ (2021)
6.20 All access points and devices recorded a positive growth during the period
under review except for ATMs.
6.21 Over a thousand business continuity applications were processed as
compared to two hundred in 2019, representing more than 400% increase.
The increase was attributable to pressures brought about by sudden changes
of operating circumstances in the Covid-19 pandemic environment. The
contingency measures put in place were able to smoothly facilitate the
seamless processing of financial transactions without causing any
instability.
6.22 The Bank will continue to facilitate business continuity for banks with
technical challenges as part of its policy mandate to promote financial
stability in the economy.
6.23 The Bank continues to safeguard the integrity of the national payment
systems, by enforcing and supporting payment services providers in
complying and upholding the best practice standards including anti-money
laundering and countering financing of terrorism (AML/CFT).

E-Banking
Platform
Mobile Banking
Card
Crypto/Virtual
Switch/Payment
system
POS

Risk Matrix and Risk Management Systems
6.24 The sound operation of payment systems is central to facilitating financial
transactions and supporting economic growth. The advance in technology
presents an opportunity for payment system providers to develop innovative
products and services. These technological advances, however, change the
risk landscape, particularly by increasing exposure to cyber and moneylaundering, and terrorism-financing risks.
6.25 Below are key composite risk assessments for payment systems, which
arise from the combination of level of inherent risk and related risk
management systems. The level of inherent risk is ranked from low,
moderate to high and the risk management systems are ranked from strong,
acceptable to weak. Payment systems have high inherent risk as shown by
the strike through on high inherent risk and strong risk management
systems (as shown by the strike through) to manage these risks leading to a
moderate composite risk (as shown by the strike through) as illustrated in
Table 19 below.
Table 19: Payment Systems Risk Management Assessment Matrix
6.26 Overall payments systems have moderate composite risk which is in the
stable direction leading to an overall composite risk assessment of a
moderate to high risk as shown in Table 20 below.

COMPOSITE RISK ASSESSMENT
LEVEL OF INHERENT RISK
Low
Moderate
High
RISK MANAGEMENT
SYSTEMS
Strong
low
Moderate
Moderate
Acceptable
Moderate
Moderate to High
High
Weak
Moderate
High
High

Table 20: Overall Payment Systems Risk Assessment Matrix
OVERALL COMPOSITE RISK ASSESSMENT
DIRECTION OF RISK
Decreasing
Stable
Increasing
COMPOSITE RISK
Low
low
Moderate
Moderate
Moderate
Moderate
Moderate to
High
Moderate to High
Moderate to High
Moderate to
High
Moderate to
High
High
High
High
High
High
6.27 Overall payments systems have a moderate to high risk as shown in table
when analysed by each type of risk as shown in the table below.
Table 21: Payment Systems Risk Assessment by Risk Type
Type of Risk
Level
of
Aggregate
Inherent Risk
Adequacy of
Aggregate
Risk
Mgt.
Systems
Overall
Composite
Risk
Direction
of
Overall
Composite Risk
Residual
Composite
Risk
Systemic
Moderate
Strong
Moderate
Stable
Moderate to
High
Credit
Low
Strong
Low
Stable
Moderate
Settlement
Moderate
Strong
Moderate
Stable
Moderate to
High
Interest
Low
Strong
Low
Stable
Moderate
Market:
Foreign
Exchange
Low
Strong
Low
Stable
Moderate
Liquidity
Moderate
Strong
Moderate
Increasing
High
Operational
High
Strong
Moderate
Stable
Moderate to
High
Cyber crime
High
Strong
Moderate
Increasing
High
ity
High
Strong
Moderate
Stable
Moderate to
High
Money
Laundering and
Terrorism
Finance
Moderate
Strong
Moderate
Stable
Moderate to
High
Legal &
Compliance
High
Strong
Moderate
Stable
Moderate to
High
Reputation
High
Strong
Moderate
Stable
Moderate to
High
Strategic
High
Strong
Moderate
Stable
Moderate to
High
Aggregate
High
Strong
Moderate
Stable
Moderate to
High

6.28 The Bank will continue to monitor the resilience of the time critical and
high value-risk payment systems in order to identify any emerging or
specific vulnerabilities that may affect the nature of financial stability risks
going forward.

Highlights on Specific Programs and Initiatives
a) Cyber Security

6.29 Cybercrime is one of the risks targeting the financial sector which is
expected to increase in sophistication and frequency in view of the
increased leveraging on technology.
6.30 The national payment systems have largely digitalised and have become a
major target for fraudsters and cyber criminals. Evidence at hand indicate
that, a number of various security breaches have been reported such as
ransomware, card skimming, phishing and SQL (Structured Query
Language) injection attacks.
6.31 It is imperative for regulators to stay a step ahead and proactively formulate
safety-nets for financial system stability. In this regard, the Bank is
increasingly coordinating efforts to reinforce the financial cyber security
landscape to address the constantly evolving threats. To this end, the Bank
has issued a Cybersecurity Framework that outlines the minimum
requirements for participant banks and payment services providers to
enhance cyber risk management..
6.32 Meanwhile, continuous guidance to the market is being issued through
advisory circulars and directives to the regulated entities.

b) Migration to EMV Chip Technology

6.33 EMV, (Europay, MasterCard and Visa) is a set of international standards
that defines interoperability of secure transactions across the international
payments landscape.
6.34 EMV has become one of the major stepping stones to the future of payments
due to its dynamic data authentication (Contactless, Mobile).
6.35 To ensure uniformity in the card payment ecosystem, banks were required
to implement the EMV measures that handle card-based payments, with
less risk.
6.36 The Bank will continue with efforts to ensure full EMV compliance of
payment systems devices, access points and related infrastructure
particularly for cards which have been noted to be lagging.

c) Swift Customer Security Programme and Related Activities
6.37 The Reserve Bank continues to review SWIFT operations and engagements
on an ongoing basis to ensure robust and increased security of the SWIFT
architecture and the financial system at large.
6.38 There were continuous engagements with SWIFT participants on the
implementation of SWIFT projects underway during the period under
review namely the Customer Security Program (CSP), Global Payment
Initiative (GPI), ISO 20022 and Standard Release 2021.
6.39 ISO 20022 is an international message standard for transmitting financial
transactions between financial institutions and businesses alike. The
standard helps to facilitate efficiency, increase security and interoperability
in payment systems.
6.40 A country subcommittee was established to provide guidance to the SWIFT
community on the migration to ISO20022 earmarked for implementation in
2022.

d)
Regional and International Developments
6.41 Zimbabwe is a member of the SADC Real Gross Settlement System
(SADC-RTGS) and Common Market for Eastern and Southern Africa
Regional Payment and Settlement Systems (COMESA-REPSS) which are
primarily intended to promote inter-regional trade.
6.42 Zimbabwe, Zambia and South Africa are currently testing the retail
payment streams which when implemented will further promote low value
payments, mainly in the form of remittances given the intra-regional labour
migration.
6.43 At the end of December 2020, Zimbabwe had 14 banks on the SADCRTGS facilitating cross border payments.
6.44 The regional payment platforms will promote the much required interregional trade and reduce transactional costs on payments going through
international channels while managing the de-risking challenge. The
expected reduction in the flow of funds via illegal channels will positively
impact on financial stability.

7.
AML/CFT SURVEILLANCE INITIATIVES
7.1 The domestic economy thrives when the financial services sector is safe and
sound thereby providing the necessary conditions for smooth monetary
policy transmission and financial intermediation. The Financial Intelligence
Unit (FIU) undertakes a range of oversight activities relating to anti-money
laundering, countering financing of terrorism and proliferation financing.
7.2 AML/CFT risk in the context of assessment is composed of both threat and
vulnerability. The following sections highlight the scenario for risk for
AML selected sectors.
Sectoral Risk Assessment
a)
Mobile Money Service Providers
7.3 Mobile Money Service Providers (MMP) operate in a technologically
advancing and dynamic sector. Against this background, AML/CFT/PF risk
in the MMP sector of financial services industry is inherently high.
7.4 MMP threat levels are considered to have dissipated towards the end of
2020 because of enforcement activities instituted. On the downside,
however, vulnerability of the sector remains high, giving an overall high
inherent risk.
7.5 The Reserve Bank is currently seized with the implementation of the risk
based supervision of payment services providers including mobile money
providers.
7.6 At the same time, the Bank has progressively implemented a number of
measures to strengthen the effectiveness of its AML/CFT regime and
addressed related technical compliance deficiencies.
7.7 During the period under review, the Bank in collaboration with the
Financial Intelligence Unit, adopted a principled stand against any
violations with a view to enhancing financial stability in the economy.

7.8 A number of payment providers and mobile money agents were penalised
for abusing the payment channels. The Bank also directed the pruning of
selected services and products that were being used as springboards for
undesirable activities.
7.9 The Bank is also increasingly conscious of the opportunities and threats
brought about by new innovations and technologies. To this end, staff of
payment services providers were trained through joint efforts with the FIU
in order to foster compliance culture.
7.10 Going forward, the Bank will continuously apply the risk based approach
holistically and where necessary take appropriate corrective measures to
ensure stability and integrity of the national payment system.
b)
Money Value Transfer Agencies
7.11 Amounts flowing through the official money value transfer channels
showed a positive increasing trend in 2020.
7.12 The Money Value Transfer Agencies (MVTA) sector for the period under
review was deemed to be moderate to high risk, taking second place to
MMP. There are indications that large amounts of illicit money transfers
are taking place across borders away from official channels. Drivers to the
illicit flows range from apparently benign causes such as transaction costs
and culture to more malignant causes such as origin and purpose of funds.
7.13 Given the implication of unrecorded flows to economic planning as well as
the implications for ML/TF that may arise from funds flowing underneath
official controls, the sector requires focused attention to reign in deviant
behaviour.
7.14 The FIU is continuing to work with other stakeholders on awareness raising
for participants in this sector.

c)
Banking Sector
7.15 The Banking sector is rated medium in the period under review for
AML/CFT/PF risk.
7.16 There are varying levels of adoption of AML/CFT compliance and thus
vulnerability and risk management profiles observed for different
institutions in the sector.
7.17 Overall, the Covid-19 pandemic created risk for the banking sector,
particularly due to the increased uptake of previously low risk rated
products through digital on boarding processes. Whilst banks have been
eager to embrace the technology and remain afloat in the pandemic, their
compliance sections are generally lagging behind in AML/CFT compliance
monitoring in relation to the challenges that have arisen. This has created
considerable vulnerability to digital and IT related fraud activities.
7.18 It is anticipated that the risk-based approach for high risk products and
institutions will go a long way in addressing the fragmented compliance
that exists within the banking sector.

d)
Insurance, Pensions and Securities
7.19 These sectors remain low risk for AML/CFT. The major cause for low risk
for Insurance and Pensions is partly the low levels of activities in these
sectors, whilst Securities assumed a higher level of risk in the period under
review given the increased activity in investment and broking that arose as
an avenue to invest funds in the pandemic period.
7.20 The Financial Intelligence Unit is working closely with IPEC and SECZ to
monitor these sectors for possible heightened risk exposure.

e)
Microfinance Institutions
7.21 Microfinance institutions (MFIs) continue to be classified as low risk for
AML/CFT/PF.

7.22 However, the level of risk potentially increased in the period under review
as a result of the closure of agent lines for illicit activities in the mobile
financial services sector. Entry barriers into the sector are not sufficiently
prohibitive compared to other sectors and the minimum AML/CFT/PF
supervisory activity may lure suspect funds and players into the sector.

High Risk Classification by the FATF
7.23 The Financial Action Task Force has continued to classify Zimbabwe as
a High-Risk jurisdiction due to the deficiencies in its AML/CFT regime and
other variables including political and credit risk. As such, transactions
from the country are subject to enhanced due diligence. The country has
also been grey-listed by the International Country Risk Guide (ICRG).
7.24 An action plan to address the deficiencies has been agreed by the ICRG and
the Zimbabwean Authorities. During the period under review, the country
was in its second year of this plan of action.
De-risking
7.25 De-risking practices by global financial institutions threaten to cut off
access to the global financial system for remittance companies and local
banks, putting them at risk of losing access to the global financial system.
7.26 During the period under review it was noted that 9 financial institutions had
their corresponding relationship restricted and 4 financial institutions had
their corresponding relationship terminated due to either jurisdiction
concerns, regulatory concerns and/or respondent concerns.
7.27 De-risking from correspondent banks has put pressure on banks to tighten
their AML/CFT measures, in order to satisfy their correspondent partners
of the robustness of their systems, to ensure they are not being used as
conduits for laundering dirty money.

7.28 This has led to closure of 71 bank accounts due to AML/CFT concerns and
34 accounts due to correspondent bank conditions during the period under
review.
Financial Inclusion
7.29 The FIU supports financial inclusion, as formal transactions by a banked
economy are less vulnerable to ML/TF/PF. Notable gains have been made
on the front of financial inclusion specifically with regards to KYC Lite
products.
7.30 The Financial Intelligence Unit continues to issue guidance in relation to
approval of new products as well as facilitating related capacity building
initiatives. The FIU will also conduct ongoing due diligence and close
monitoring to proactively mitigate emerging risks.
Crypto Assets and other Digital technologies
7.31 Internationally from an AML/CFT/PF perspective, authorities are
advocating for licensing and supervision of emerging technologies for
AML/CFT.
7.32 The Bank has taken a proactive approach to ensure financial innovation
does not destabilise the country’s financial system. A Fintech Unit was
established with the main mandate of researching and monitoring Fintech
developments in the country. To foster responsible innovation, the Bank
established a Regulatory Sandbox in March 2021, which provides a
platform for testing new financial innovations in a regulated environment
before the technology is ushered to the market.
7.33 The Bank is cautious about the potential impact of digital currencies, given
the sensitivities around currency issues. As such, the Bank will remain
guided by international developments on Fintech issues as well as guidance
from international and regional standard setting bodies.

8.
OUTLOOK
8.1 The global economy is projected to recover in 2021. However, financial
stability risks associated with the Covid-19 pandemic are likely to persist in
light of the uncertain path the pandemic will take across the world. From a
global perspective, rising cyber risks, asset price increases and debt buildup from accommodative monetary policies effected in 2020 are some of the
key risks to financial stability. The wind-down of supportive fiscal and
monetary policy measures are also crucial factors that will determine the
economic recovery trajectory.
8.2 Economic recovery in advanced economies due to the availability of the
vaccine may result in tapering of money supply growth in pursuance of
disinflationary measures, with consequent increases in interest rates.
Should average global interest rates increase this might impact the servicing
costs and availability of lines of credit.

Banking Sector Stability
8.3 A domestic economic rebound is expected on the back of the extensive
Covid-19 vaccination campaign that is currently being undertaken by the
Government of Zimbabwe. Industry is expected to reopen resulting in
increased economic activities which will spur growth across the different
sectors of the economy.
8.4 The ongoing inflationary neutral and monetary stabilization measures are
expected to go a long way in mitigating economic and social costs. Inherent
credit risk is likely to remain moderate in the short to medium term whilst
operational risk may remain high due the adoption of digital financial
services and associated technological advancements. Notwithstanding, the
banking sector is expected to maintain its resilience in light of strong
balance sheets, capitalisation and profitability.

Financial Market Infrastructures
8.5 The risk outlook for the payment system infrastructure shall continue to be
dominated by the course and effects of the Covid-19 pandemic. It is
expected that the support measures implemented by the Government will
continue to assist financial market infrastructures to function satisfactorily
through the pandemic.
8.6 Players are urged to continue to manage risks relating to governance, cyber
security, fraud, settlement, operation, compliance, money laundering and
financing of terrorism among others.
8.7 The Bank will continue to enhance the regulatory framework that embraces
new developments, capacity building through upskilling of staff, risk based
monitoring and supervision as well as collaboration with other supervisors.
8.8 The Bank further encourages the adoption and positioning of new business
models commensurate with the obtaining risk profile in the environment as
mitigatory measures to the identified vulnerabilities and threats.

Insurance and Pensions Industry
8.9 Against the background of anticipated macroeconomic stability
characterised by declining inflation, stable exchange rates, a successful
vaccination programme, among other factors, the industry is anticipating a
rebound of the economy.
8.10 The industry also expects increases in occupancy rates as well as uptake of
Real Estate Investment Trusts and an increase in listings and trades at the
Victoria Falls Foreign Exchange, which have a bearing on the investment
return and liquidity of the insurance and pensions industry.

8.11 At regulatory and supervisory level, IPEC will be working with players in
the industry to address data integrity challenges, governance gaps and
compensation to policyholders and pension scheme members following
currency reforms.
8.12 Major risks requiring effective management include reputation, credit,
liquidity, cyber, third party and operational risks. Some of the risks may be
reduced if the Covid-19 pandemic is sufficiently contained at national level.

Securities Market Expectations
8.13 The year under review saw the operationalization of the Reuters foreign
exchange market tracker system which successfully stabilized the formal
market prices and enhanced industry access to the foreign currency.
8.14 SEC remains focused on sustainable regulatory policy framework for
purposes of rebuilding confidence, promoting new listings as well as
attracting investors onto the market.
8.15 Key risk areas in the outlook period include the Covid-19 induced business
disruptions which affect the full operations of the Securities Market
Intermediaries (SMIs) and listed entities. The players are expected to
continue to invest in technology in a manner which mitigates operational
risks and promote profitability and going concern status.
8.16 While domestic inflationary pressures have been receding there are some
residual threats to the capital markets. Inflation risk affects performance of
listed entities performance and negative returns may dampen the interest of
foreign investors.
8.17 For the rest of 2021, the industry expects the ongoing financial sector
reforms to result in a sustainable foreign currency reserves position and
sustained economic revival.

8.18 The increasing dependence on technology in the capital markets has
reactivated the risk of cyber-attacks on financial data and systems. While
there has been no incidence of data leaks locally, in the short term, these
attacks will continue to pose a threat to financial institutions.
8.19 The Commission remains vigilant in its AML risk monitoring to ensure
revenue generated from illegal activities do not find its way to the capital
markets and/or be used for mergers and acquisitions.
8.20 The rejuvenation of VFEX is expected to be a game changer in the medium
to long term. The authorities shall endeavour to expand the listed entities
on the Exchange to promote portfolio building and management.

Deposit
Protection
System

8.21 From a financial safety net perspective, the financial sector has remained
stable and resilient, despite its vulnerability to various risks.
8.22 The corporation expects to continue to build its capacity to reduce the scope
of funding risk which is considered to be high. Risk mitigation initiatives
include (a) actuarial determination of optimal premium rate and risk-based
premium rate system; (b) investment income diversification; and engaging
with stakeholders with a view to protect FCA deposits.

Appendices

Appendix 1: Macroeconomic Indicators for Zimbabwe

2020 (Est)
REAL SECTOR






Real GDP at 2012 Market prices (US$' m)
18,188.30
18,325.80
19,187.80
20,234.56
19,024.30
18,236.22
Nominal GDP at Market (US$'m up to 2016)
19,963.10
20,548.70
22,434.60
36,921.29
161,977.15
1,070,640.29
GDP at Market Prices % changes
1.8
0.8
4.8
5.5
-6
-4.1
GDP per capita
1,304.50
1,284.90
1,316.40
1,189.84
933.64
1,159.81







PRICES






Month-on-Month (end period) %
-0.11
0.06
0.53
9.03
16.6
4.2
Annual Inflation (end period) %
-2.5
-0.93
3.46
42.1
521.2
348.6
Annual Inflation (period average) %
-2.41
-1.56
0.9
10.6
173.3
654.9







EXTERNAL SECTOR






Trade Balance (US$m)
-2113.5
-1262.6
-950.8
-2464
-131.4
53.9
Current a/c balance (US$m)
-1596.6
-697.4
-295
-1379.63
10235.65
67560.85
Current a/c balance (% of GDP)
-8.00%
-3.40%
-1.30%
-3.70%
6.30%
6.30%







MONETARY SECTOR*






Broad Money M3 (ZW$ '000)
4,765,422
6,200,282
7,817,279
10,009,905
350,180,000
202,724,000
Domestic Credit (ZW$ '000)
5,535,396
8,451,438
10,697,156
14,982,345
27,820,000
139,267,000
Credit to Private Sector (ZW$ '000)
3,830,132
3,495,107
3,719,426
4,058,651
11,113,000
121,390,000
Credit to Parastatals (ZW$ '000)
140,910
356,235
591,301
737,587
988,381.20
-
Credit to Government ( net )(ZW$ '000)
1,564,355
4,466,829
6,277,468
9,992,337
14,063,000
14,241,000
Nominal Minimum Lending Rate (%)

4.5

Nominal Maximum Lending Rate (%)

STOCK MARKET INDICES






Industrial Index (Points)
114.9
134.8

487.13
766.34
2636.34
Mining Index (Points)
23.7
60.9
142.4
227.71
316.66
4134.09
Grand Market Capitalisation (US$m)
3,073.40
3,763.90
9,580.60
19,189.50
27,977.00
317,879.31







PUBLIC FINANCES






Revenue excluding grants
3,737.10
3,502.20
3,950.20
5,533.00
22,971.00
173,496.00
Revenue including grants
3,737.10
3,502.20
4,375.90
5,533.00
22,971.00
173,496.00
Capital expenditure and net lending

387.2
1,530.00
3,087.90
2,194.30
57,742.00
Recurrent Expenditure
3,348.00
3,807.80
4,515.00
5,197.00
13,823.00
120,754.00
Total expenditure and net lending
3,923.60
4,705.50
6,045.00
5,743.00
7,765.00
65,655.00
Balance excluding grants
-186.5
-1,203.30
-2,094.80
-210.00
15,206.00
107,841.00
Balance including grants
-186.5
-1,203.30
-1,669.10
-210.00
15,206.00
107,841.00
POPULATION (millions)
13.9
14.3
14.6
14.9
14.4
14.9

Appendix 2: Selected Banking Sector Indicators, 2016 – 2020

Capital Adequacy Ratio
24.55% 27.64%
28.22% 33.41% 34.62%
Nonperforming Loans Ratio
7.88%
7.05%
6.92%
1.75%
0.31%
Large Exposures to Capital
93.03% 94.78%
97.60% 35.47% 32.61%
Return on Equity
13.36% 15.50%
26.28% 58.77% 45.54%
Return on Assets
2.49%
2.61%
4.57%
8.99% 13.55%
Prudential Liquidity Ratio
97.07% 98.58% 100.97% 98.31% 73.06%