Zimpapers Logo

Sanderson Abel
It is a fact that the Credit Reference System was long overdue in the country where each and every monetary policy statement that has been announced has articulated the effects of the growing non-performing loans on our financial landscape. In my article last week, I applauded the central bank for taking a participatory approach towards the resolution of this problem through the creation of the credit reference system.

High and rising levels of non-performing loans exerted strong pressure on banks’ balance sheet, with adverse effect on banks’ lending operations.

Since the onset of the multi-currency system, NPLs in the country has increased to a high level of 20, 1 percent in 2014 from just above 2 percent in 2009 when the multicurrency was adopted.

With such astronomic growth in toxic assets in our financial sector citizens and the policy makers should be worried and come together to devise workable solutions given this is not only a monetary phenomenon but it also impact heavily on the real sector.

It is very clear now that at this juncture the surge in NPLs had become an immediate destabilising factor for the recovery of the economy.

The feedback effects from the banking system to economic activity undermine a sustained recovery and posed significant vulnerabilities.

Acknowledging the gravity of the problem, the Reserve Bank of Zimbabwe Governor, Dr John Mangudya, has placed the resolution of the NPLs problem as a priority devising a number of strategies to tame this big elephant.

It is the bankers and other lenders perception that the creation of the credit reference system will go a long in reducing the problems of growing toxic assets in their books.

When fully operational, the process will help reduce the cost of banking as the defaults by borrowers goes down; reduce the cost of funds; reduce default rates as borrowers seek to protect their reputation collateral by meeting their obligations in a timely manner; increase motivation for clients to repay their loans; encourage consumers to maintain good credit records; reward consumers who maintain good payment histories; provide a more comprehensive picture of consumer financial behaviour.

With these benefits likely to be reaped when the system is fully operational, stakeholders have a number of expectations from the system.

Some expectations of the stakeholders should be taken aboard as the system is being developed while others would require ongoing incorporation into the credit reference as it rolls. I highlight a number the expectations that will allow the reaping of full benefits;

The credit reference system needs to take into account the historical data already in existence, e.g. FCB, Dunns & Bradstreet, and also starts including data from other business entities (micro-finance, utility operators, Zimra, department stores, etc). That way the assessment at least takes into account a number of stakeholders.

The credit reference system should have a way of including court judgments in a more formal manner (instead of papers which can be misleading or not cover all details).

Charges for the use of the system should not be too high.

Procedures on how one can “remedy” their blacklisted status should be included. Some people are able to rehabilitate themselves. It is important to have procedures on how they can redeem themselves.

BAZ expects all creditors to be part of the system with no exceptions so that information obtained is holistic on any particular client.

The database should contain both negative and positive data to help in decision-making.

Transparency of the credit reference system is of paramount importance, banks should be able to log on and do a reference check on anyone desiring credit facilities without fear or favour.

The process should not be discriminatory – should not be intercepted or manipulated to give a report that depends on who is being checked

The RBZ should also make it mandatory for anyone desiring credit to have their credit standing checked so that there are no “sacred cows” who are exempted from this

Standardised scorecards that are in line with Basel recommendations for all CPA members required. This will help banks since they will be using the same measuring tool for their decision making.

Confidentiality of the system is of utmost importance as failure to abide by this will destroy credibility of the whole system. We expect that there would be penalties for any breaches of any sort. For competitive reasons members should not be able to access information they are not entitled to, maybe to “steal” another bank’s clients

We expect an efficient system that will not overly delay the process when assessing the creditworthiness of a client in order to make a lending decision

Issue of adequate data protection laws to support credit reference should remain top of the agenda. For instance, is it legally correct to “blacklist” a defaulter before obtaining a judgment, etc. Can an aggrieved defaulter blacklist the bank or its officials?

In conclusion, let’s understand that the introduction of Credit Reference Bureaus in our financial landscape is an effort to encourage sharing of information by institutions so as to reduce the incidences of serial defaults by bank customers as well as minimise the incidences of non-performing loans.

Credit Reference Bureaus are meant to complement the central role played by banks and other financial institutions in extending financial services within an economy, hence is meant to help all of us.

Sanderson Abel is an Economist. He writes in his capacity as Senior Economist for the Bankers’ Association of Zimbabwe. For your valuable feedback and comments related to this article, he can be contacted on [email protected] or on numbers 04-744686 and 0772463008.