## IMF Technical Assistance Report | Preface, Executive Summary, Recommendations, Introduction, Banking Sector Overview, and Implementation of Basel III Liquidity Standards (March–April 2024 mission)

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### Mission purpose, timeline, and participants
- Mission purpose: Assist the Reserve Bank of Zimbabwe (RBZ) in finalizing implementation of the Basel III Liquidity Framework, with particular focus on the Net Stable Funding Ratio (NSFR).
- Timeline: hybrid mission — virtual: March 25 to 28, 2024; in-person: April 8 to 12, 2024.
- Participants and engagements:
  - Met with: Mr. Philip Madamombe (Director, RBZ BSD), Mr. Ruzayi Chiviri, Ms. Norah Mukura (RBZ Deputy Directors, BSD), Dr. Jeremiah Borerwe, Mr. Simelizwe Ncube, other supervisors, and representatives of all Zimbabwe’s banks.
  - Delivered: training on LCR and NSFR to BSD supervisors; participated in a Basel III liquidity standards event with banking institutions.
  - Outputs developed with RBZ staff: (i) draft NSFR regulation; (ii) NSFR prudential reporting template following LCR granularity.
- Funding: TA financed by the Financial Sector Stability Fund.

### Executive summary — main activities and outputs
- TA activities:
  - Reviewed RBZ drafts of NSFR regulation and prudential returns templates.
  - Supported RBZ to elaborate a QIS questionnaire.
  - Reviewed LCR prudential returns.
  - Delivered training on LCR and NSFR.
  - Provided recommendations and participated in banking outreach.
- Main outputs toward NSFR implementation:
  - Draft regulation detailing NSFR standards requirements.
  - NSFR prudential reporting template (to be used for the QIS subject to incorporation of relevant questions).
- Importance emphasized:
  - Conducting a QIS and public consultation prior to finalization.
  - Continued verification of LCR data quality and off-site cross-checking processes.
  - Monitoring by significant currency given material US$ exposures.

### Key recommendations (selected, with priority and timeframe)
- NSFR implementation
  - 1. Conduct a QIS with the banks’ support to estimate the NSFR implementation impact on the banking system. — Priority: High; Timeframe: ST
  - 2. Finalize the NSFR draft regulation and proceed to conduct a public consultation on the implementation of the NSFR regulation. — Priority: High; Timeframe: ST
  - 3. Approve NSFR regulation. — Priority: High; Timeframe: ST
  - 4. Expand scope of Basel III liquidity regulations (LCR and NSFR) to include associates for consolidated calculation. — Priority: Medium; Timeframe: MT
- Liquidity prudential reports & monitoring tools
  - 5. Finalize NSFR prudential report template and require reporting quarterly, with monthly information. — Priority: High; Timeframe: ST
  - 6. Consider developing off-site automatic processes for LCR data quality verification, cross-checking with other supervisory data. — Priority: High; Timeframe: ST
  - 7. Develop liquidity risk monitoring processes and tools incorporating NSFR data and the ‘Contractual Maturity Mismatch’ monitoring tool; allow assessment in aggregate and by significant currency. — Priority: High; Timeframe: MT

### Banking sector overview — composition and key statistics (exact figures)
- Sector composition:
  - 14 commercial banks, 4 building societies, and 1 savings bank.
  - Total assets: ZW$34.4 trillion (December 31, 2023), corresponding to 55 percent of GDP.
  - Of the 19 banks, 7 have foreign shareholding with combined market share over 51 percent.
- Capital and solvency (December 31, 2023):
  - All banks compliant with minimum capital adequacy requirements (based on banks’ prudential returns).
  - Banking sector average capital adequacy ratio: 37.34 percent.
  - Banking sector average Tier 1 ratio: 25.77 percent.
  - Regulatory minimums: capital adequacy 12 percent; Tier 1 8 percent.
- Asset quality:
  - Nonperforming loans (NPLs) to total loans ratio: 2.09 percent (December 31, 2023).
- Liquidity and currency composition:
  - Banks started calculating and reporting LCR to RBZ in June 2023.
  - BSD September 2023 data: 82 percent of bank deposits were in foreign currency, mainly USD.
- Currency reform:
  - On April 5, 2024, Zimbabwe introduced a new currency—Zimbabwe Gold (ZiG)—anchored by a composite basket of foreign currency and precious minerals (mainly gold) held as reserves by RBZ. Banks started converting ZW$ balances into ZiG balances.

### Annex I — sector structure highlights (selected exact values)
- Total (All Banks): 34,412,227,249,115.90 (100.00% market share)
- Top 5 banks — TOTAL ASSETS (ZW$) and MARKET SHARE:
  - 1 CBZ — 6,573,084,283,102.97; MARKET SHARE: 19.10%
  - 2 STANBIC — 5,565,922,070,016.27; MARKET SHARE: 16.17%
  - 3 ECOBANK — 3,583,630,626,797.00; MARKET SHARE: 10.41%
  - 4 CABS — 3,036,499,170,695.06; MARKET SHARE: 8.82%
  - 5 FBC — 2,712,911,986,630.72; MARKET SHARE: 7.88%

### Banking sector time-series indicators (ZW$ Billion and ratios — exact values)
- Total Assets (ZW$ Billion): Dec-22: 3,814.43; Mar-23: 5,676.25; Jun-23: 27,284.88; Sep-23: 28,355.17; Dec-23: 34,412.23
- Total Loans (ZW$ Billion): Dec-22: 1,293.51; Mar-23: 1,969.12; Jun-23: 10,190.14; Sep-23: 9,699.42; Dec-23: 11,264.45
- Net Capital Base (ZW$ Billion): Dec-22: 746.30; Mar-23: 1,013.18; Jun-23: 5,948.89; Sep-23: 6,316.68; Dec-23: 7,657.91
- Total Deposits (ZW$ Billion): Dec-22: 2,323.51; Mar-23: 3,171.31; Jun-23: 14,776.75; Sep-23: 16,075.83; Dec-23: 19,469.49
- Net Profit (ZW$ Billion): Dec-22: 503.13; Mar-23: 207.25; Jun-23: 4,553.21; Sep-23: 4,671.78; Dec-23: 5,768.05
- Return On Assets: Dec-22: 17.43%; Mar-23: 4.92%; Jun-23: 26.11%; Sep-23: 23.69%; Dec-23: 23.97%
- Return On Equity: Dec-22: 54.33%; Mar-23: 16.62%; Jun-23: 74.60%; Sep-23: 55.63%; Dec-23: 68.99%
- Capital Adequacy Ratio (Benchmark 12): Dec-22: 37.51%; Mar-23: 41.05%; Jun-23: 40.48%; Sep-23: 43.15%; Dec-23: 37.34%
- Tier 1 Ratio (Benchmark 8): Dec-22: 26.92%; Mar-23: 27.85%; Jun-23: 35.35%; Sep-23: 27.28%; Dec-23: 25.77%
- Loans To Deposits (Benchmark 70): Dec-22: 55.67%; Mar-23: 62.09%; Jun-23: 68.96%; Sep-23: 60.34%; Dec-23: 49.27%
- Non-Performing Loans Ratio (Benchmark 5): Dec-22: 1.58%; Mar-23: 3.30%; Jun-23: 3.63%; Sep-23: 2.34%; Dec-23: 2.09%
- Liquidity Ratio (Benchmark 30): Dec-22: 59.50%; Mar-23: 57.65%; Jun-23: 59.88%; Sep-23: 61.74%; Dec-23: 60.53%

### NSFR implementation — methodology, sequencing, and supervisory tooling
- NSFR rationale and scope:
  - LCR and NSFR have complementary objectives under the Basel III liquidity framework; NSFR promotes a sustainable funding structure appropriate to Zimbabwe’s asset-liability profile.
- QIS and industry engagement:
  - QIS is critical to estimate impact; banks must timely and correctly fill impact study templates formatted to NSFR methodology.
  - Draft NSFR regulation and the TA-supported template should guide banks’ data submission for QIS.
- Interdependent assets and liabilities:
  - Supervisors may treat interdependent assets/liabilities by reducing ASF and RSF factors to 0 percent; QIS should collect information to identify eligible operations.
  - Definition provided: interdependent items meet criteria including liability cannot fall due while asset remains, principal flows used only to repay the liability, and liability cannot fund other assets.
- Treatment of encumbered assets for central bank liquidity operations:
  - Recommendation: RBZ consider national discretion allowing assets encumbered in central bank liquidity operations to receive the same RSF factor as equivalent unencumbered assets to avoid undermining central bank liquidity operations.
- Consolidated approach:
  - Basel recommends consolidated NSFR; mission recommends implementing NSFR and LCR on a consolidated basis (including associates) after operationalizing consolidated supervision framework.
- Prudential reporting and frequency:
  - NSFR prudential report template drafted; reporting frequency: quarterly, with monthly information.
  - Template follows LCR granularity, requires aggregate, by-currency, and associates’ data; QIS results may prompt template changes.
- Monitoring tools:
  - Recommend including ‘Contractual Maturity Mismatch’ monitoring tool for structural liquidity monitoring once NSFR data available.
- LCR first assessments and LCR model conservatism (December 2023):
  - LCR data indicate large HQLA buffers; HQLA mainly coins, banknotes, and reserves at RBZ for most banks.
  - Many banks reached the cap of 75 percent cash outflows; most have higher inflows than outflows.
  - Some banks applied conservative modelling (general run-offs to total balances), increasing LCR denominator and requiring higher HQLA buffers.
- Data quality, model validation, and off-site cross-checking:
  - BSD developing ‘LCR Model and Risk Management Validation Framework’.
  - Typical data issues flagged: funding balances only in low run-off categories; wholesale funding reported as only ‘small business customers’; high fully performing inflows maturing in 30 days; large ‘Other contractual cash inflow’; relevant amount of level 2A HQLA — these can inflate LCR levels.
  - Recommended off-site automated cross-checking with supervisory data sources:
    - a. Cross-check LCR balances with financial statements (coins and bank notes, reserves at RBZ, total deposits, deposits in foreign currencies, loans).
    - b. Use credit risk register to estimate maturing fully performing inflows and cross-check LCR inflow buckets.
    - c. Compare deposit insurance entity data with LCR outflow buckets requiring insured-deposit treatment.
    - d. Cross-check NSFR components derived from LCR to ensure consistency (LCR balances should not exceed corresponding NSFR balances).
- Disclosure and timing:
  - LCR regulation (Prudential Standard No: 02-2022/BSD: Guidance on the Implementation of the Liquidity Coverage Ratio (December 2022)) established disclosure requirement in line with Basel standards, but requirement not yet put into force.
  - Mission concurs disclosure should await supervisor comfort with accuracy of bank-calculated LCRs.
- Implementation sequencing and currency monitoring:
  - Recommendation: conclude LCR prudential report data quality assessment before implementing liquidity risk processes and tools.
  - Monitoring processes and tools should permit assessment by significant currency; Basel expects HQLA distribution consistent with liquidity needs by currency and recommends LCR by currency as a monitoring tool.
  - Zimbabwe banks’ deposits: 82 percent held in foreign currency (mostly US$) per September 2023 data.

*IMF Technical Assistance Report | Preface, Executive Summary, Recommendations, Introduction, Banking Sector Overview, and Implementation of Basel III Liquidity Standards (March–April 2024 mission).*

### Preface ................................................................................................................

### Preface

### Mission purpose and timeline
- At the request of the Reserve Bank of Zimbabwe (RBZ), the Monetary and Capital Markets Department (MCM) conducted a hybrid mission: a virtual mission from March 25 to 28, 2024 and an in-person visit to Harare from April 8 to 12, 2024, to assist RBZ in finalizing implementation of the Basel III Liquidity Framework, with particular focus on the Net Stable Funding Ratio (NSFR).

### Participants and engagements
- Met with: Mr. Philip Madamombe (Director, RBZ Banking Supervision Division (BSD)), Mr. Ruzayi Chiviri, Ms. Norah Mukura (RBZ Deputy Directors, BSD), Dr. Jeremiah Borerwe, Mr. Simelizwe Ncube, other supervisors responsible for Basel III liquidity standards implementation, and representatives of all Zimbabwe’s banks.
- Delivered: training on LCR and NSFR to BSD supervisors; participated in a Basel III liquidity standards event with banking institutions.
- Outputs developed with RBZ staff: (i) draft NSFR regulation detailing requirements on NSFR standards; and (ii) NSFR template for prudential reporting to RBZ. The NSFR template follows the granularity of the LCR prudential report to facilitate monitoring and automate cross-checking procedures. The mission recommends NSFR reporting quarterly, with monthly information.

### Funding and acknowledgement
- The Technical Assistance (TA) was financed by the Financial Sector Stability Fund.
- Mission expressed gratitude to RBZ management for cooperation and hospitality.

---

### Executive Summary

### Objectives and activities
- TA mission supported RBZ to finalize Basel III Liquidity Framework implementation, focusing on NSFR.
- Reviewed RBZ drafts of NSFR regulation and prudential returns templates; supported RBZ to elaborate a questionnaire for a Quantitative Impact Study (QIS); reviewed LCR prudential returns; delivered training on LCR and NSFR; provided recommendations to enhance drafts; participated in outreach with banking institutions.

### Key outputs and process
- Main outputs toward NSFR implementation:
  - Draft regulation detailing NSFR standards requirements.
  - NSFR prudential reporting template (to be utilized for the QIS subject to incorporation of relevant questions).

### Importance of QIS and consultation
- QIS and public consultation are important steps in NSFR rulemaking:
  - QIS assesses impact of new regulation on banking system.
  - Public consultation promotes dialogue, helps adjust rules considering local banking system peculiarities.

### LCR assessment and data quality
- LCR first assessments indicate banks are very liquid.
- Importance of continued verification of LCR data quality reported by banks.
- BSD developed internal guidance on ‘LCR Model and Risk Management Validation’.
- Mission recommended off-site cross-checking processes to compare LCR information with other supervisory data sources.

### Monitoring tools and currency-specific monitoring
- BSD should implement liquidity risk monitoring processes and tools for both LCR and NSFR, expanding prior TA recommendations to cover structural liquidity (NSFR).
- Monitoring must rely on sound data sources; recommend implementation after concluding data quality assessment of LCR prudential reports.
- Recommendation: monitoring processes and tools should permit assessment of liquidity risk by significant currency because banks’ exposures in US$ are material from liquidity risk perspective.
- NSFR report data should follow same granularity pattern as LCR report to support aggregate and by-currency monitoring.

### Consolidated basis and future TA
- Recommend implementing calculation and compliance with liquidity standards on a consolidated basis as a second step after operationalizing consolidated supervision framework. Current approach: solo basis applied to LCR calculation and proposed in NSFR draft regulation.
- Recommend considering a TA mission on the Basel III capital framework to review draft capital regulations, update prudential reporting templates, and develop a QIS questionnaire.

---

### Recommendations (Key items from Table 1)

- Priority definitions: Short term (ST) = < 12 months; Medium term (MT) = results from 12 to 24 months.

NSFR
- 1. Conduct a QIS with the banks’ support to estimate the NSFR implementation impact on the banking system. — Priority: High; Timeframe: ST
- 2. Finalize the NSFR draft regulation and proceed to conduct a public consultation on the implementation of the NSFR regulation. — Priority: High; Timeframe: ST
- 3. Approve NSFR regulation. — Priority: High; Timeframe: ST
- 4. Expand the scope of application of the Basel III liquidity regulations (LCR and NSFR), including associates of the banking institutions, for the calculation of liquidity requirements on a consolidated basis. — Priority: Medium; Timeframe: MT

Liquidity Prudential Reports and Monitoring Tools
- 5. Finalize NSFR prudential report template and require the reporting of NSFR on a quarterly basis, with monthly information. — Priority: High; Timeframe: ST
- 6. Consider developing off-site automatic processes for LCR data quality verification on an ongoing basis, involving cross-checking of LCR data with other data available for supervision. — Priority: High; Timeframe: ST
- 7. Develop liquidity risk monitoring processes and tools incorporating the assessment of structural liquidity risk based on the NSFR data and the ‘Contractual Maturity Mismatch’ monitoring tool. Monitoring processes and tools should allow for the assessment of liquidity risk in aggregate and by significant currency. — Priority: High; Timeframe: MT

---

### I. Introduction (mission context and background)

- MCM hybrid mission dates: March 25 to April 12, 2024 (virtual: March 25–28; in-person: April 8–12).
- Mission activities: virtual meetings with BSD middle management and supervisors; in-person meetings; targeted training sessions for banking supervisors; participation as guest speakers in RBZ Liquidity Standards awareness event.
- Historical TA context:
  - 2019 FSSR follow-up TA roadmap agreed to address weaknesses in supervision, resolution, and crisis management.
  - 2019: joint LEG/MCM TA on RBZ Act, Banking Act, Deposit Protection Corporation Act.
  - 2019–2020: two TAs on risk-based supervision.
  - 2021–2023: four TAs supporting consolidated supervision, Basel III liquidity and capital standards.
  - AFRITAC South delivered three TA missions on banking supervision.
  - More recently, MCM provided TA on bank resolution and crisis management frameworks.
- This mission is the third TA dedicated to Basel III liquidity standards:
  - First mission (Nov 2020–Apr 2021): review drafts for LCR/NSFR, liquidity monitoring tools, and reporting templates.
  - Second mission: supported approval process of LCR regulations and reporting templates. LCR regulations issued in December 2022 and implemented by banks since then.
  - March–April 2024 missions focused on finalizing NSFR regulations and advising on remaining implementation issues.
- Outreach and training:
  - Awareness session with 30 participants from banking industry; RBZ presented preliminary LCR analysis; IMF experts presented NSFR standard.
  - Two days of training for ~30 BSD supervisors: day 1 on LCR supervision and data assessment; day 2 on NSFR methodology and Pillar 3 disclosure requirements.

---

### II. Banking Sector Overview (key statistics and observations)

- Banking sector composition:
  - 14 commercial banks, 4 building societies, and 1 savings bank.
  - Total assets: ZW$34.4 trillion (December 31, 2023), corresponding to 55 percent of GDP.
  - Of the 19 banks, 7 have foreign shareholding with combined market share over 51 percent.
- Capital adequacy and solvency:
  - All banks compliant with minimum capital adequacy requirements on December 31, 2023 (based on banks’ prudential returns).
  - Banking sector average capital adequacy ratio: 37.34 percent.
  - Banking sector average Tier 1 ratio: 25.77 percent.
  - Regulatory minimums: capital adequacy 12 percent; Tier 1 8 percent.
  - Banking sector core capital growth driven mainly by revaluation gains from foreign exchange denominated assets and investment properties.
  - Banks required to comply with new minimum capital level requirements (in absolute amounts) by December 31, 2023; RBZ stated banks made progress toward meeting these requirements.
- Asset quality:
  - Nonperforming loans (NPLs) to total loans ratio: 2.09 percent (December 31, 2023).
  - RBZ attributes low NPL ratio to strong credit risk management; supervisors should ensure timely identification and accurate asset classification and provisioning.
- Liquidity and currency composition:
  - Banks started calculating and reporting LCR to RBZ in June 2023.
  - LCR data indicate large amounts of High Quality Liquid Assets (HQLA) buffers relative to LCR stress needs. Coins, banknotes, and reserves at RBZ are main HQLA components for most banks.
  - BSD's September 2023 data: 82 percent of bank deposits were in foreign currency, mainly USD.
- Currency reform and implications:
  - On April 5, 2024, Zimbabwe introduced a new currency—Zimbabwe Gold (ZiG)—anchored by a composite basket of foreign currency and precious minerals (mainly gold) held as reserves by RBZ. The new currency was established by an amendment to the RBZ Act.
  - RBZ announced changes to exchange rate and monetary policies to achieve a stable national currency.
  - When new currency was introduced, banking sector started converting ZW$ balances into ZiG balances.
  - Note: In principle, currency change would not impact NSFR implementation because RBZ is finalizing regulation and an implementation period will follow issuance.

---

### III. The Implementation of Basel III Liquidity Standards

### A. Specific recommendations on the Net Stable Funding Ratio (NSFR)
- Drafting and operational steps:
  - TA reviewed NSFR draft regulation in detail and assisted in elaborating the NSFR prudential report template.
  - NSFR template designed to follow LCR report granularity to permit monitoring in aggregate and by currency and to facilitate automated cross-checking.
- Recommended sequencing and actions:
  - Conduct QIS using NSFR template to estimate implementation impact (High priority; ST).
  - Finalize NSFR draft regulation and conduct public consultation to obtain banking industry input (High priority; ST).
  - Approve NSFR regulation (High priority; ST).
  - Following operationalization of consolidated supervision framework, expand scope to calculate LCR and NSFR on a consolidated basis including banking associates (Medium priority; MT).
- Data, monitoring, and supervisory tooling:
  - Finalize NSFR prudential report template and require quarterly reporting with monthly information (High priority; ST).
  - Implement off-site automatic processes for LCR data quality verification, cross-checking LCR data with other supervisory data sources (High priority; ST).
  - Develop liquidity risk monitoring processes and tools incorporating NSFR data and the ‘Contractual Maturity Mismatch’ monitoring tool; ensure monitoring allows assessment in aggregate and by significant currency (High priority; MT).
- Training and stakeholder engagement:
  - Continue supervisor capacity building and industry outreach to raise awareness and gather implementation perspectives and challenges.

*IMF Technical Assistance Report | Preface, Executive Summary, Recommendations, Introduction, Banking Sector Overview, and Implementation of Basel III Liquidity Standards (March–April 2024 mission).*

### 13.        The mission recommends that RBZ finalizes and issue NSFR regulation, which could

### 13.        The mission recommends that RBZ finalizes and issue NSFR regulation, which could contribute to the banking system’s resilience.

### NSFR rationale and scope
- According to the Basel III liquidity framework, the LCR and the NSFR have different but complementary objectives.
- Analyses by the BCBS have demonstrated the complementary nature of the two liquidity standards – LCR and NSFR – and indicate that the international framework has contributed to banking systems’ resilience.
- RBZ supervisors present the banking sector of Zimbabwe as having a classic asset-liability profile focused on financial intermediation (credit portfolio backed by customer deposits and external lines of credit), which would benefit from the NSFR as a prudential requirement to promote a sustainable funding structure.
- The mission reviewed with RBZ representatives:
  - all aspects of the NSFR methodology;
  - relationship between NSFR and accounting standards, rules for Secured Financing Transactions (SFT) and encumbered assets;
  - the concept of interdependent assets and liabilities and the discretion supervisors have to treat them;
  - distinct treatment for exceptional central bank liquidity operations;
  - approach to NSFR computation on a consolidated basis.
- Finalization of the NSFR regulation depends on the execution and evaluation of the items described in subsequent paragraphs.

### Quantitative Impact Study (QIS) and industry engagement
- A QIS is an important part of the NSFR rulemaking process.
- Bank support is of upmost importance for a successful impact estimate: banking institutions need to timely and correctly fill the impact study templates with data formatted according to the NSFR methodology and usually not available in supervisory authority systems.
- The draft NSFR regulation could guide banks to provide appropriate data to RBZ.
- The TA mission supported RBZ in preparing a reporting template for an impact study.
- RBZ has the established practice of issuing draft regulations for public consultation to obtain feedback and assess adjustments considering local banking system peculiarities.

### Interdependent assets and liabilities
- Supervisors have discretion to decide whether certain assets and liabilities are interdependent; if so, they may adjust ASF and RSF factors, reducing them to 0 percent.
- The QIS exercise is timely and appropriate to collect information from banks to identify operations that would suit interdependent treatment.
- Definition: Asset and liability items are interdependent when the liability cannot fall due while the asset remains on the balance sheet, principal payment flows from the asset cannot be used for something other than repaying the liability, and the liability cannot be used to fund other assets (additional criteria also apply).

### Treatment of encumbered assets for central bank liquidity operations
- BSD should evaluate distinct treatment for assets encumbered for exceptional central bank liquidity operations.
- The NSFR standard allows application of a reduced RSF factor to assets provided by banks as collateral for liquidity-providing operations to avoid central bank operations exceeding one year becoming less effective due to corresponding reduction in a bank’s NSFR ratio.
- Recommendation: RBZ should consider adopting the national discretion allowed in the international standard and include in the regulation a provision allowing an asset encumbered in a central bank liquidity operation to receive the same RSF factor as an equivalent unencumbered asset.

### Consolidated approach to NSFR
- The Basel framework recommends a consolidated approach to NSFR regulation.
- The mission identified potential for improvement: inclusion of cash flows, assets, and liabilities of associates in the LCR and NSFR calculation would allow a consolidated and broader prudential view of risks.
- Recommendation: implement calculation and compliance to liquidity standards on a consolidated basis in addition to the current solo basis approach.
- This recommendation aligns with RBZ’s efforts to enhance risk-based supervision and consolidate supervision.

### Prudential reporting: NSFR template and frequency
- The mission drafted a prudential reporting template for NSFR with BSD.
- Reporting frequency: Banks will be required to report NSFR data to RBZ every quarter, with monthly information.
- Template design:
  - follows the granularity of the LCR template, particularly buckets derived from LCR metrics;
  - seeks equivalence to balance sheet accounts to facilitate automated cross-checking and mitigate data quality issues;
  - requires information in aggregate, by currency, and from associates of the bank’s group.
- The QIS results may impact the report template design; updates may derive from QIS outputs.

### Consolidation of associates and LCR template update
- The NSFR prudential report aims to collect data from subsidiaries and other associates of the banking group.
- Since the May 2022 TA mission, BSD has been working toward a consolidated supervisory approach; the NSFR template was designed to also collect individual data from associates.
- Recommendation: update the LCR template to encompass similar information from associates.

### Monitoring tools: Contractual Maturity Mismatch and LCR monitoring
- The mission discussed objectives and methodology of the ‘Contractual Maturity Mismatch’ monitoring tool; deeper discussion was deferred to NSFR implementation.
- TA mission in March 2022 supported LCR requirements implementation, including staff training and monitoring tools focused on short-term liquidity risk (training covered ‘Concentration of funding’, ‘Available unencumbered assets’ and ‘LCR by significant currency’).
- Recommendation: include Contractual Maturity Mismatch in the set of monitoring tools to be implemented as part of structural liquidity monitoring when NSFR data is available.

### LCR first assessments and observed patterns (December 2023)
- Figure 1 (aggregate composition of main LCR components in weighted values) shows:
  - High level of coins, bank notes and reserves at the RBZ in the HQLA buffer composition (LCR numerator).
  - Predominance of unsecured wholesale deposits (mainly small business customers) and inflows by counterparty (mostly from demand deposits in other financial institutions) in cashflows (LCR denominator).
  - Many banks have reached the cap of 75 percent cash outflows, with most having higher inflows than outflows.
- Aggregated amounts are from 17 reporting banks.

### LCR model conservatism and consequences
- Individual analysis indicates some banks opted for more conservative models to estimate cash outflows by applying general run-offs to total balances rather than estimating buckets that receive lower run-off rates or excluding deposits not withdrawable in 30 days.
- Consequence: increasing the LCR denominator by applying general run-off rates to total balances requires a higher numerator, i.e., a higher HQLA buffer.
- In general, banks in Zimbabwe have high levels of HQLA buffers, allowing use of more conservative parameters to simplify LCR calculation.

### Data quality, model validation, and supervisory actions
- BSD is developing guidance for supervisors: ‘LCR Model and Risk Management Validation Framework’ to support assessment of banks’ LCR calculation models (draft discussed with TA mission and suggestions provided).
- Typical data issues flagged include: funding balances only in categories with lower run-off rates; wholesale funding reported as only ‘small business customers’; high fully performing inflows by counterparty maturing in 30 days; significant ‘Other contractual cash inflow’; relevant amount of level 2A HQLA; etc.—these tend to inflate reported LCR levels.
- Supervisors are expected to address and require corrections when data accuracy issues arise.

### Off-site cross-checking and automated verification recommendations
- Mission recommended enhancing off-site processes and tools for LCR data quality verification; off-site verifications complement but do not replace on-site inspections.
- Suggested ongoing automated cross-checking processes to compare LCR data with other documents reported to RBZ; off-site supervisors assess flagged outputs and request clarifications or require substitution of incorrect reports.
- Examples of cross-checking procedures:
  a. Data from financial statements: total or partial cross-checking of balance sheet accounts (coins and bank notes, reserves at RBZ, total deposits, deposits in foreign currencies, loans, etc.);
  b. Data from the credit risk register: use granular credit information to estimate amount fully performing maturing in 30 days by counterparty and crosscheck with LCR cash inflow bucket ‘other inflows by counterparty’;
  c. Data from the deposit insurance entity: compare total amount of deposit insured for each bank with sum of cash outflows from buckets requiring deposit insurance as condition for lower run-off rates (retail and small business deposits; operational and non-operational wholesale insured deposits);
  d. Data from the NSFR prudential report: some NSFR components come from LCR methodology, thus LCR balances should not be greater than corresponding NSFR balances.

### Disclosure and timing
- The LCR regulation issued by RBZ (Prudential Standard No: 02-2022/BSD: Guidance on the Implementation of the Liquidity Coverage Ratio (December 2022)) established requirement for LCR information disclosure in line with Basel standards, but the requirement has not yet been put into force.
- The mission concurs with BSD that disclosure should await supervisor comfort with the accuracy of bank-calculated LCRs.

### Implementation sequencing and monitoring by currency
- BSD has commenced implementation of liquidity risk monitoring processes and tools for LCR and NSFR; the mission recognizes progress but notes time remains to meet the [Medium Term] timeline for reviewing monitoring processes and extending scope to structural liquidity based on NSFR data and Contractual Maturity Mismatch.
- Recommendation: conclude LCR prudential report data quality assessment before implementing liquidity risk processes and tools.
- The mission recommends liquidity risk monitoring processes and tools should allow assessment by currency:
  - Basel expects banks to maintain HQLA consistent with distribution of liquidity needs by currency and recommends LCR by currency as a monitoring tool.
  - In Zimbabwe, banks’ exposures on US$ are material from a liquidity risk perspective.
  - Banks’ balance sheet information from September 2023 revealed that 82 percent of the banks’ deposits are held in foreign currency (according to BSD, mostly in US$).
  - While minimum standards (LCR and NSFR) are required in aggregate, enhanced monitoring by currency is recommended; monitoring tools and review processes should provide outputs in aggregate and by currency.

*Italic: IMF Technical Assistance Report | 14–19*

### Annex I. Structure of the Banking Sector as of

### Annex I. Structure of the Banking Sector as of December 31, 2023

### Bank rankings and total assets (ZW$)
- Source: The Reserve Bank of Zimbabwe.
- Total (All Banks): 34,412,227,249,115.90 (100.00% market share)

- 1 CBZ — TOTAL ASSETS: 6,573,084,283,102.97; MARKET SHARE: 19.10%; CONTROL: Mixed; COUNTRY OF HOME SUPERVISION: Zimbabwe; BANKS ARE INVOLVED IN CONSOLIDATED SUPERVISION: +
- 2 STANBIC — TOTAL ASSETS: 5,565,922,070,016.27; MARKET SHARE: 16.17%; CONTROL: Foreign; COUNTRY OF HOME SUPERVISION: South Africa; BANKS ARE INVOLVED IN CONSOLIDATED SUPERVISION: +
- 3 ECOBANK — TOTAL ASSETS: 3,583,630,626,797.00; MARKET SHARE: 10.41%; CONTROL: Foreign; COUNTRY OF HOME SUPERVISION: Togo; BANKS ARE INVOLVED IN CONSOLIDATED SUPERVISION: +
- 4 CABS — TOTAL ASSETS: 3,036,499,170,695.06; MARKET SHARE: 8.82%; CONTROL: Foreign; COUNTRY OF HOME SUPERVISION: Zimbabwe; BANKS ARE INVOLVED IN CONSOLIDATED SUPERVISION: +
- 5 FBC — TOTAL ASSETS: 2,712,911,986,630.72; MARKET SHARE: 7.88%; CONTROL: Mixed; COUNTRY OF HOME SUPERVISION: Zimbabwe; BANKS ARE INVOLVED IN CONSOLIDATED SUPERVISION: +
- 6 ZB BANK — TOTAL ASSETS: 2,050,761,945,944.29; MARKET SHARE: 5.96%; CONTROL: Local Private; COUNTRY OF HOME SUPERVISION: Zimbabwe; BANKS ARE INVOLVED IN CONSOLIDATED SUPERVISION: +
- 7 FIRST CAPITAL BANK — TOTAL ASSETS: 1,769,864,425,425.23; MARKET SHARE: 5.14%; CONTROL: Foreign; COUNTRY OF HOME SUPERVISION: Malawi; BANKS ARE INVOLVED IN CONSOLIDATED SUPERVISION: +
- 8 NMB BANK — TOTAL ASSETS: 1,344,131,090,469.81; MARKET SHARE: 3.91%; CONTROL: Foreign; COUNTRY OF HOME SUPERVISION: Zimbabwe; BANKS ARE INVOLVED IN CONSOLIDATED SUPERVISION: +
- 9 NEDBANK — TOTAL ASSETS: 1,184,859,413,145.00; MARKET SHARE: 3.44%; CONTROL: Foreign; COUNTRY OF HOME SUPERVISION: South Africa; BANKS ARE INVOLVED IN CONSOLIDATED SUPERVISION: +
- 10 BANC ABC — TOTAL ASSETS: 1,143,357,511,938.86; MARKET SHARE: 3.32%; CONTROL: Foreign; COUNTRY OF HOME SUPERVISION: Zimbabwe; BANKS ARE INVOLVED IN CONSOLIDATED SUPERVISION: +
- 11 METBANK — TOTAL ASSETS: 1,095,257,082,302.71; MARKET SHARE: 3.18%; CONTROL: Local Private; COUNTRY OF HOME SUPERVISION: Zimbabwe; BANKS ARE INVOLVED IN CONSOLIDATED SUPERVISION: +
- 12 STANDARD CHARTERED — TOTAL ASSETS: 991,756,418,961.92; MARKET SHARE: 2.88%; CONTROL: Local Private; COUNTRY OF HOME SUPERVISION: Zimbabwe; BANKS ARE INVOLVED IN CONSOLIDATED SUPERVISION: +
- 13 STEWARD BANK — TOTAL ASSETS: 936,394,738,326.92; MARKET SHARE: 2.72%; CONTROL: Local Private; COUNTRY OF HOME SUPERVISION: Zimbabwe; BANKS ARE INVOLVED IN CONSOLIDATED SUPERVISION: +
- 14 AFC — TOTAL ASSETS: 726,955,694,167.60; MARKET SHARE: 2.11%; CONTROL: State; COUNTRY OF HOME SUPERVISION: Zimbabwe; BANKS ARE INVOLVED IN CONSOLIDATED SUPERVISION: +
- 15 NBS — TOTAL ASSETS: 474,171,501,028.95; MARKET SHARE: 1.38%; CONTROL: State; COUNTRY OF HOME SUPERVISION: Zimbabwe; BANKS ARE INVOLVED IN CONSOLIDATED SUPERVISION: (not indicated)
- 16 POSB — TOTAL ASSETS: 453,352,720,347.92; MARKET SHARE: 1.32%; CONTROL: State; COUNTRY OF HOME SUPERVISION: Zimbabwe; BANKS ARE INVOLVED IN CONSOLIDATED SUPERVISION: (not indicated)
- 17 FBC BS — TOTAL ASSETS: 447,982,786,076.70; MARKET SHARE: 1.30%; CONTROL: Mixed; COUNTRY OF HOME SUPERVISION: Zimbabwe; BANKS ARE INVOLVED IN CONSOLIDATED SUPERVISION: +
- 18 TIME BANK — TOTAL ASSETS: 170,360,917,582.05; MARKET SHARE: 0.50%; CONTROL: Local Private; COUNTRY OF HOME SUPERVISION: Zimbabwe; BANKS ARE INVOLVED IN CONSOLIDATED SUPERVISION: +
- 19 ZB BS — TOTAL ASSETS: 150,972,866,155.88; MARKET SHARE: 0.44%; CONTROL: Local Private; COUNTRY OF HOME SUPERVISION: Zimbabwe; BANKS ARE INVOLVED IN CONSOLIDATED SUPERVISION: +

### Banking sector key indicators (ZW$ Billion and ratios)
- Source: The Reserve Bank of Zimbabwe.

- Total Assets (ZW$ Billion)
  - Dec-22: 3,814.43
  - Mar-23: 5,676.25
  - Jun-23: 27,284.88
  - Sep-23: 28,355.17
  - Dec-23: 34,412.23

- Total Loans (ZW$ Billion)
  - Dec-22: 1,293.51
  - Mar-23: 1,969.12
  - Jun-23: 10,190.14
  - Sep-23: 9,699.42
  - Dec-23: 11,264.45

- Net Capital Base (ZW$ Billion)
  - Dec-22: 746.30
  - Mar-23: 1,013.18
  - Jun-23: 5,948.89
  - Sep-23: 6,316.68
  - Dec-23: 7,657.91

- Total Deposits (ZW$ Billion)
  - Dec-22: 2,323.51
  - Mar-23: 3,171.31
  - Jun-23: 14,776.75
  - Sep-23: 16,075.83
  - Dec-23: 19,469.49

- Net Profit (ZW$ Billion)
  - Dec-22: 503.13
  - Mar-23: 207.25
  - Jun-23: 4,553.21
  - Sep-23: 4,671.78
  - Dec-23: 5,768.05

- Return On Assets
  - Dec-22: 17.43%
  - Mar-23: 4.92%
  - Jun-23: 26.11%
  - Sep-23: 23.69%
  - Dec-23: 23.97%

- Return On Equity
  - Dec-22: 54.33%
  - Mar-23: 16.62%
  - Jun-23: 74.60%
  - Sep-23: 55.63%
  - Dec-23: 68.99%

- Capital Adequacy Ratio (Benchmark 12)
  - Dec-22: 37.51%
  - Mar-23: 41.05%
  - Jun-23: 40.48%
  - Sep-23: 43.15%
  - Dec-23: 37.34%

- Tier 1 Ratio (Benchmark 8)
  - Dec-22: 26.92%
  - Mar-23: 27.85%
  - Jun-23: 35.35%
  - Sep-23: 27.28%
  - Dec-23: 25.77%

- Loans To Deposits (Benchmark 70)
  - Dec-22: 55.67%
  - Mar-23: 62.09%
  - Jun-23: 68.96%
  - Sep-23: 60.34%
  - Dec-23: 49.27%

- Non-Performing Loans Ratio (Benchmark 5)
  - Dec-22: 1.58%
  - Mar-23: 3.30%
  - Jun-23: 3.63%
  - Sep-23: 2.34%
  - Dec-23: 2.09%

- Liquidity Ratio (Benchmark 30)
  - Dec-22: 59.50%
  - Mar-23: 57.65%
  - Jun-23: 59.88%
  - Sep-23: 61.74%
  - Dec-23: 60.53%

### Loans, advances, and NPL trends (figures data points)
- Banking sector loans and advances (Amount, ZW$ Millions) by date:
  - Dec-17: 3,798.36
  - Dec-18: 4,072.42
  - Dec-19: 12,629.15
  - Dec-20: 82,413.48
  - Dec-21: 229,015.54
  - Dec-22: 320,363.41
  - Dec-23: 11,264,451.01

- Nonperforming Loans Ratio (%) by date:
  - Jun-22: 0.61%
  - Sep-22: 0.94%
  - Dec-22: 1.58%
  - Mar-23: 3.30%
  - Jun-23: 3.62%
  - Sep-23: 2.34%
  - Dec-23: 2.09%

### Status of implementation of key recommendations (TA Mission, March 2022)
- Source: IMF Technical Assistance Report.

- Recommendation 1: The RBZ to finalize the draft LCR regulation, including:
  - Final revision to take into account the comments raised on the draft version of the LCR guidelines and the LCR report template;
  - Final revision of instructions for completing the LCR templates for public disclosure and prudential reporting to supervisors;
  - Additional data requirement for the implementation of the monitoring tools.
  - Priority: High; Timeline: I; Status: Implemented

- Recommendation 2: The RBZ to approve new LCR regulation.
  - Priority: High; Timeline: I; Status: Implemented

- Recommendation 3: The RBZ to require banks to prepare action plans to achieve compliance with new liquidity regulations and begin its implementation.
  - Priority: Medium; Timeline: I; Status: Implemented

- Recommendation 4: The RBZ to monitor LCR implementation by banks, based on the steps established in their action plans.
  - Priority: Medium; Timeline: ST; Status: Implemented

- Recommendation 5: The RBZ to ensure that banks report their LCR and information for the monitoring tools on regular basis.
  - Priority: High; Timeline: ST; Status: Implemented

- Recommendation 6: The RBZ to ensure that banks disclose LCR and other liquidity risk information to the public.
  - Priority: High; Timeline: MT; Status: Regulation issued, but not in force

- Recommendation 7: The RBZ to review the liquidity risk monitoring process using data from the LCR and the monitoring tools, with objectives to:
  - Assure an adequate quality level on data used to monitor the banks’ liquidity risk exposure.
  - Map the liquidity risk level of the supervised institutions, both in aggregate and by relevant currencies (domestic and US$), and monitor liquidity risk.
  - Identify any idiosyncratic liquidity issue in a specific bank that would lead to supervisory actions to address the problem.
  - Monitor the banks’ liquidity level during stress periods and keep the RBZ board and relevant departments informed about the liquidity issues and vulnerabilities.
  - Monitor the banks’ compliance with the LCR minimum requirement and take promptly actions when a bank reports a breach in the LCR.
  - Assess whether the LCR information banks are disclosing to the public is correct.
  - Priority: High; Timeline: MT; Status: Early stage of implementation

- Recommendation 8: The RBZ to approve new NSFR regulation, to ensure that banks compute and report their NSFR on regular basis, and to examine banks’ compliance with established regulations.
  - Priority: High; Timeline: MT; Status: Subject of the current TA

*Source: The Reserve Bank of Zimbabwe; IMF Technical Assistance Report.*

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_Source: https://www.imf.org/-/media/files/publications/tar/2024/english/tarea2024081-print-pdf.pdf_