via Zamco takes over $65m NPLs | The Herald January 21, 2015
THE Zimbabwe Asset Management Company, formed by the central bank to rid local banks of bad loans, has to date taken over $65 million worth of non-performing loans.
Reserve Bank of Zimbabwe governor Dr John Mangudya yesterday said the exercise was critical in view of the fact that the NPLs had potential to break down the economy.
“So far the company has purchased assets worth $65 million,” he said, adding “NPLs can break down the economy because banks will not have capacity to lend new money.”
Dr Mangudya said that the high rate of non-performing loans had potential to adversely affect economic recovery and if banks do not lend “it means that businesses do not grow”.
This comes against the backdrop of weak macro-economic fundamentals including low exports, weak industrial capacity, high cost of finance, weak current account and trade deficit.
Concurrent with the takeover of NPLs is a validation exercise of the bad loans to determine how much and which loans qualify to be taken off the balance sheets of banks.
Earlier, Dr Mangudya said validation of the NPLs was critical to avoid moral hazard, a situation where banks would lend out without taking due regard for requisite risk measures.
Against this background, he said ZAMCO would only assume bad loans well secured as it was naturally not prudent and reckless conduct for a bank to lend without security.
Late last year, Dr Mangudya said that NPLs had grown from an average of 18 percent in July to about 20 percent by December, locking up $800 million in the process.
Dr Mangudya said this was a situation that RBZ had to step up and resolve, as the bad loans would not disappear on their own, rather, they kept growing due to interest.
Assumption of bad loans by ZAMCO will be supported by establishment of a national credit reference bureau to address the problem of information asymmetry in credit extension.
Presenting the 2015 National Budget Statement, Finance and Economic Development Minister Patrick Chinamasa said focus will this year be on developing key features and structures to underpin a successful asset purchase strategy for ZAMCO.
He said this included designing an appropriate legal and governance structure, developing appropriate asset valuation and pricing strategy to ensure NPLs are purchased from banks at fair value; and identifying feasible and sustainable funding strategy; relying on a combination of long-term domestic bonds and external financing.
This will entail raising the requisite capital to be used to cleanse NPLs on a commercial basis, against a bank’s financial assets, through a debt instrument of 10–15 years.
This is expected to result in strong banks’ balance sheets that are able to access liquidity to fund productive activities and help spur economic growth, Minister Chinamasa said.
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