EDITORIAL COMMENT: Banks must increase due diligence

The decision by the Zimbabwe Asset Management Authority, a special purpose vehicle created by the Reserve Bank to cleanse banks of non-performing loans (NPL) to shift focus to resolving the bad loans it collected should be a wakeup call for banks to be prudent in their lending.

ZAMCO is pulling the plug on further acquisition of NPLs after taking up $812,5 million of bad loans, which has helped sanitise the loan books of several banks.

The move resulted in the level of NPLs declining from a peak of 20,45 percent of all loans in June 2014 to 7,87 percent which is about three percent shy of the five percent recommended by the RBZ.

As at December 31, 2016, sectors with the largest proportions of NPLs were individuals, commercial, mining and agriculture sectors, which constituted 18,41 percent, 14,30 percent, 13,13 percent and 12,28 percent of total non-performing loans, respectively.

We fully appreciate that the RBZ has stuck to its word that ZAMCO was not going to be there forever, but was just a stop gap measure to help banks emerge from the rut they had got themselves into.

Now that the cushion has been removed banks need to start taking their credit risk management seriously because it is their poor management that is largely to blame for the accumulation of bad loans.

While most banks have been scaling down on lending due to NPLs we believe that this is not the solution, they need to do a thorough job of screening all loan applications from start to finish.

The practice of lending huge sums of money to individuals and corporates who have no capacity to repay the money should end.

Banks should ensure that loans are channelled to the right people or sectors with capacity to repay such as the productive sector.

After all the whole purpose of ZAMCO taking up NPLs was to ensure that banks get leeway to lend money to the productive sectors.

This is very critical if the country is going to realise its goal to turnaround the economy. Banks should appreciate that they are custodians of depositors’ fund and as such are accountable for their actions especially the abuse of such funds.

It is commendable that the RBZ has been tightening the screws on bank supervision and has warned that it would not hesitate to penalise directors of banks that fail to give due consideration to the viability of the projects that they are funding.

The amendment of the Banking Act should also give further impetus to ensuring that banks are kept on the straight and narrow. We believe that this should bring sanity to our banking system and put a stop to the madness that had been going on in the sector.

Banks would also do well to make use of the Central Credit Reference Bureau, which went live last month, to check on the creditworthiness of their clients.

We hope RBZ will ensure that micro-finance institutions are also afforded access to the Bureau’s database soon.

We applaud the move taken by ZAMCO and hope that banks have learnt from this experience.

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