Golden Sibanda Senior Business Reporter
The Reserve Bank of Zimbabwe’s effort to rid the banking sector of bad loans has been a resounding success with $357 million non-performing loans said to have been acquired from banks and restructured.
The ratio of NPLs has since declined markedly to 10,87 percent as at the end of December last year from 20,4 percent in September 2014 largely due to loans disposal and more prudential lending by banks.
Presenting his Monetary Policy last Thursday RBZ Governor, Dr John Mangudya, said loans by companies with good turnaround prospects had been acquired since the debt acquisition started last year.
“As at December 31, 2015, the Zimbabwe Asset Management Company had acquired and restructured non-performing loans totalling $357 million from a number of banking institutions. ZAMCO has acquired and restructured loans for distressed companies that have good turnaround prospects,” he said.
The value of secured NPLs in the banking sector is estimated at about $500 million. Dr Mangudya is on record saying NPLs have the potential negative effect of stifling fresh loans into productive sectors of the economy, which would in turn strangle economic turnaround.
Dr Mangudya said companies whose NPLs were acquired are in critical sectors of the economy such as mining, agro-processing and manufacturing, which are already battling a myriad of problems including high costs of funding and lack of capital to retool.
The restructuring process entails extending the loan repayment period, grace periods for capital repayment and reducing interest rates and in some instances converting debt to equity.
ZAMCO, RBZ’s special purpose vehicle for debt takeover, is optimistic that acquiring and restructuring of bad loans will firmly set affected firms on a path back to viability in the short to medium term, thereby supporting employment creation and economic transformation.
A total of eighteen NPLs amounting to $77,4 million are at various stages of evaluation. Further, ZAMCO in conjunction with judicial managers is at advanced stages of concluding restructuring transactions of four companies, with a combined value of $31 million.
Finalisation of these transactions will mark the completion of the first phase of NPLs acquisitions. In the first quarter of 2016, the RBZ chief said, focus in loan acquisition will be on all outstanding eligible NPLs outside the top 100 with a minimum value of $50 000.
As such, banks are required to ensure that loan and security files as well as business plans relating to NPLs they want acquired in the second phase are ready to facilitate due diligence and asset review processes.
Banks will in future be required to ensure adequate, but reasonable security against loans given to productive sectors of the economy to avoid recurrence of the bad debts crisis, which affects their lending.
Institution of various resolution policy measures, assumption of qualifying NPLs by ZAMCO and establishment of a credit reference bureau are expected to reduce NPLs below 5 percent by year end.