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Patrick Takawira

Golden Sibanda Senior Business Reporter
THE proliferation of non-performing loans in the banking sector post dollarisation should partly be blamed on poor credit assessment, a senior treasury executive with a leading bank has said.

FBC Bank treasury executive director Patrick Takawira said on Friday last week that most banks were to blame for the astronomical growth in bad loans, due to poor credit risk assessment on borrowers. Mr Takawira was speaking at a research workshop organised by the University of Zimbabwe Graduate School of Management, at the university’s campus in Mt Pleasant.

Most local banks started reducing their lending to productive sectors of the economy following the phenomenal growth in NPLs after dollarisation. Official figures show that NPLs peaked at just under a billion dollars.

Mr Takawira said some banks extended huge sums of money to corporate or individual borrowers who had no adequate capacity to repay or project(s) needing time to take off and generate returns.

“We can do better by improving credit risk assessment starting from (loan) initiation, monitoring and evaluation,” Mr Takawira said.

He noted banks should match loans to the needs of the borrower. For its part, FBC Bank currently riding on the crest of 31 percent jump in profit before income tax at $9,3 million, has chiselled its NPLs down to 4,34 percent, well below the RBZ set 2016 target of 5 percent.

The level of non-performing loans has declined from a peak of 20,45 percent in June 2014 to total loans to 7,87 percent as at 31 December 2016.

RBZ governor Dr John Mangudya said the sharp decline was attributable to the combined impact of the various policy measures instituted by the apex Bank and initiatives by the banks. The measures included enhanced credit management systems and collection efforts and disposal of qualifying NPLs to the Zimbabwe Asset Management Company, among other measures.

As at the end of 2016, ZAMCO had a portfolio of acquired NPLs amounting to $812,52 million which comprised of proprietary portfolio ($548,66 million and managed portfolio $263,86 million).

In certain instances, Mr Takawira said, banks extended loans without due regard to the viability of a project or time required for it to bear fruits. He said this was the reason the central bank has upped the ante in terms of bank supervision, monitoring and control.

Further, Mr Takawira said failure to give due consideration to the viability of a projects being funded was part of the reason amendments to the Banking Act would now penalise directors of banks. He noted that the amended legislation would penalise bank directors for negligently advancing loans, at times money from deposits; to projects they knew from the outset that they were not viable.

“There is need for banks to understand projects being financed and to change the time (if need be, of loan tenor) and the cost (of loan). One of the essential factors leading to NPLs is the cost,” he said.

The FBC director said it was also critically important that financial institutions gave guidance to borrowers on the threats to projects for which they borrow to finance to minimise risk of default.

“They should tell them that this you can or this you can’t do,” adding that avoiding insider loans was another sure way banks could avoid the malignant cancer of non-performing loans. Banks he said, should also match credit risk to the size of their assets.