‘Pension funds key to mortgage market revival’

Nelson Gahadza-Seniour Business Reporter

Bankers Association of Zimbabwe (BAZ) president Mr Lawrence Nyazema said in an interview pension funds, as custodians of long-term retirement savings, could play a crucial role in stimulating the mortgage finance industry by depositing these savings with banks.

A mortgage is a loan that allows individuals to purchase or maintain real estate, such as a home or land.

The borrower agrees to repay the loan over time, typically through regular payments that cover both principal and interest.

The property itself serves as collateral to secure the loan.

Zimbabwe’s mortgage market is predominantly characterised by short-term advances ranging from three to five years.

If the pension funds were to deposit long-term savings with banks, with a tenure of 25 years, for example, the financial institutions could invest those funds in projects that mature at the end of that period.

Unfortunately, Zimbabwe’s pension industry has been adversely affected by hyperinflation, particularly during the periods leading up to the dollarisation in 2009 and the more recent inflationary challenges. This has eroded confidence in the sector, said Mr Nyazema.

“Therefore, an average person will tell you they are better off doing their own investments than investing long-term with banks because they have lost value (in the past).

“What we are doing is relying on short-term deposits to create these mortgages that are short-term in nature, like three to five years,” said Mr Nyazema.

Most mortgage debt options currently in Zimbabwe do not favour retail clients, as they require 20 to 50 percent of the property value as a deposit and full settlement of the loan within six to 24 months.

Mr Nyazema said the key to unlocking the potential of pension funds lies in a stable macroeconomic environment with low inflation.

Such conditions would create a favourable environment for savings growth and stimulate investments in long-term assets like mortgages.

“We are in the right direction in terms of just stabilising the economy and making sure people believe in these savings products.

“But because people have been hurt in the past; it will take a bit of time to get where we were previously and (where) other countries are,” he said.

Mr Nyazema also noted that the banking sector had been able to survive due to a combination of daily deposits and staggered salary payments.

“There is a continuous process of depositing and taking out; that is what has kept us up; otherwise, if pay days were on the same day, we would run out of deposits.

“But this has limited what we can do as intermediaries in the industry. If you look at the loan-to-deposit ratio at the industry level, it is between 50 and 60 percent.

“In other countries, they lend as much as 90 percent because they are comfortable knowing the deposits will stay in their banks,” he added.