Banks wary of 99-year leases

via Banks wary of 99-year leases – The Zimbabwe Independent December 4, 2015

THE country’s financial institutions are not willing to accept 99-year leases as collateral for farming loans, but will assess each and every application on its individual merits, Zimbabwe Independent has learnt.

Hazel Ndebele

Government has for long been pressuring banks into funding farmers who benefitted from the controversial land reform programme through agricultural loans.

Lands and Rural Settlement minister Douglas Mombeshora early this year said his ministry has been engaging the Bankers Association of Zimbabwe (Baz) on the issue.

Sources close to the discussions said banks were only willing to fund agriculture under the right circumstances. The sources added bankers had made submissions on their concerns to government.

“Significant efforts have been made by the Ministry of Lands to make the 99- year leases bankable and some amendments have been made on the lease. Banks want some issues addressed and have put forward those concerns to government,” the source said.

Concerns raised by banks include uncertainty over security of tenure, which includes repossession of land by the state, termination and cancellation of leases by government.

They are also worried about “unclear security taking and perfection, challenges with realisation of security and marketability of the 99 year lease”.

Banks are wary of lending to farmers whose security of tenure is not guaranteed as this could easily increase their Non-Performing Loans (NPL) ratio.

“In the event that government cancels a lease and the lease was borrowed, what then happens to the bank that had lent money to this farmer? This is likely to become a bad debt which a bank will have challenges in recovering,” the source said.

Government sources told the Zimbabwe Independent most of the issues raised by the banks were dealt with in the last consultative meeting held between the Ministry of Lands and Baz.

“In the meeting, the house agreed that uncertainty of security of tenure raised by bankers was going to be dealt with by inserting a clause on the lease, which is favourable to banks,” said the source. “On the issue of repossession of land by government, the house was in agreement that repossession was exercised in very rare circumstances when the state needed to exercise its eminent domain for a given public purpose.”

The meeting is said to have also agreed that while repossession for purposes of eminent domain were catered for in the general laws of the country, it was necessary to include a clause in the lease to provide greater security to banks as well as give certain timeframes and notifications to be observed before the state exercises such domain.

Section 72 of the new constitution, which deals with rights to agricultural land, empowers government to acquire agricultural land for a public purpose. This may include resettlement for agriculture, land re-organisation, forestry and environmental conservation among other purposes.

“…the land, right or interest may be compulsorily acquired by the State by notice published in the Gazette identifying the land, right or interest, whereupon the land, right or interest vests in the State with full title with effect from the date of publication of the notice,” reads section 17 (c) (2).

On how government was going to deal with unclear security taking and perfection concern raised by banks, sources said the meeting resolved that for every 99-year lease that is registered at the Deeds Office, the ministry must register an encumbrance or charge over that lease which will show the total amount of money owed to the State by the lease for improvements, and the period within which the lease will pay the debt.

Moreover, it was agreed that such data must be readily accessible at the Deeds Office for the bankers to peruse.

Efforts to contact Mombeshora for comment were fruitless as his mobile phone went unanswered.