RBZ boss speaks on non-performing loans

via RBZ boss speaks on non-performing loans 14 November 2014

RESERVE Bank of Zimbabwe (RBZ) governor John Mangudya said yesterday the level of loan defaults rate in the sector was giving him “sleepless nights” as it had forced banks to cut on lending.

Mangudya told stakeholders at the Zimbabwe National Chamber of Commerce that non-performing loans (NPLs) in the sector were almost $800 million.

An NPL is when payments of interest and principal are past due by 90 days or more, or at least 90.

Mangudya said the total banking sector loans at September 30 amounted to $4,05 billion, but “banks have no appetite for lending because of NPLs”.

“NPLs are dragging down the economy. This gives me sleepless nights. The non-performing loans are dragging down the economy and we need to find a solution,” he said.

In his maiden monetary policy statement in August, Mangudya said Cabinet had approved the setting-up of a special purpose vehicle (SPV) to buy NPLs from the banking sector at commercial terms.

Mangudya said the SPV, Zimbabwe Asset Management Corporation (Zamco), had bought bad loans worth $45 million from three banks.

Mangudya said the board for Zamco was yet to be constituted.

Zamco will clean up and strengthen banks’ balance sheets and provide them with the liquidity to fund valuable projects for the economy to rebound and to mitigate loss of confidence.

It would be funded through a combination of non-funded lines of credit, new inflows, long-term bonds and Treasury bills.

Once restructured, the troubled assets will be sold and the proceeds used to retire the borrowing, Treasury bills or the bonds.

Analysts say the deteriorating economic fundamentals in Zimbabwe have been the chief contributor to the sector’s worsening NPL ratio as most borrowers
were failing to service their debts now.

Analysts say the rising NPLs would force banks to reduce lending.

Research firm MMC Capital warned in July that the cutback on lending would “have a huge bearing on the economy as the reduced credit supply will lead to working capital challenges

and in many instances businesses will fail to fund capital expenditure”.

“The net result will be a decline of private gross fixed capital formation and private consumption which in turn will negatively impact economic growth,” MMC said.

“In a high NPL environment, banks increasingly tend to carry out internal consolidation to improve the asset quality rather than distributing credit.”

A number of financial institutions have obtained writs of execution to attach property to recover the money from defaulting clients.