Banks’ non-performing loans headache

Nelson Gahadza Business Correspondent
Bankers Association of Zimbabwe president Sam Malaba said the high rate of non-performing loans has locked as much as $700 million in potential productive financing.
Mr Malaba, at an Agri Business Forum yesterday said NPLs, currently at 18,5 percent, had eroded the compatibility of banks in terms of liquidity.

“Addressing of NPLs through the establishment of an SPV for bad debts, the Zimbabwe Asset Management Company (ZAMCO) by RBZ and the setting up of the Credit Reference Bureau will help unlock liquidity and provide credit risk information on borrowers,” he said.

He said traditionally NPLs should be around 5 percent. According to the central bank, ZAMCO has already been approved by cabinet and has since August acquired NPLs amounting to $45 million from three banks.

Mr Malaba said RBZ should now move with speed to complete all the necessary requirements for the SPV to execute its mandate fully.

“Compounding the challenge is the growth of NPLs accounting for 18,5 percent of total banking sector assets and locking as much as $700 mln in potential financing.”

Mr Malaba said resolving the problem of limited credit to the agricultural sector calls for concerted efforts by all stakeholders, including farmers, bankers, Government, non-banking financial institutions.

He said one of the best mechanisms for overcoming the financing of agriculture is through agricultural value chains.

Banks had this year lent out $600 million to the agricultural sector.

Mr Malaba said there has been a discernible shift in agricultural financing and production towards cash crops such as tobacco and sugarcane away from traditional cereals such as maize due to efficient value chain.

“Tobacco farming is successful due to an efficient and reliable Value Chain using the Stop Order Payment System.”

In 2013, over 90 000 farmers registered for tobacco farming, output increased by more than 30 percent to 215 million kgs and realised $685 million from tobacco sales and the number of tobacco farmers is expected to be above 100 000 in 2014.

Mr Malaba said Zimbabwe does not have the medium and long-term funding required in agriculture and since dollarisation in 2009 no long-term financing has been extended to agriculture and the situation is likely to remain like that.

“Usually, long-term financing came from donor funding, but until the country deals with issues of land tenure and addresses the $9,7 billion external debt, there will be no long-term money,” he said.

Mr Malaba said there was need to expedite the issuance of bankable and transferable 99-Year Leases as well fast track the Agricultural Commodity Exchange which will include a warehouse.

“At this moment, the 99-Year Leases remain unbankable,” he said.

Lands and Rural Resettlement deputy minister Tendai Savanhu, however, said government is finalising the amended version of the 99-Year Leases.

Deputy minister Savanhu said proposed amendments provide financial institutions with clauses on how they will recover their money in case of defaults.

“Government will need to play an oversight role and there should be a win-win situation on the issue,” he said.

Bankers prefer that Government creates a Special Purpose Vehicle to collect levies from beneficiaries of the land reform. The SPV would then be used to guarantee access from the banks.

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