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Golden Sibanda, Senior Business Reporter

The Zimbabwe Asset Management Company (ZAMCO) has resolved over $420 million Non-Performing Loans (NPLS) out of $1,13 billion bad debts the central bank’s special purpose vehicle acquired from banks.

NPLs acquired by ZAMCO emanated from bad debts of firms that were burdened by high interest loans, but which if relieved of the constraint, had potential to turnaround.

Some of the rescued companies that were bailed out by ZAMCO include Cairns, Cottco, Hwange and RioZim.

The asset management firm was tasked by the Reserve Bank of Zimbabwe (RBZ) to acquire the NPLs from banks to give the financial institutions freedom on their balance sheets to continue lending to productive sectors.

At the height of NPLs in the banking sector, the ratio of bad debts averaged 20 percent against the standard global threshold of 5 percent.

Critically, banks need to keep NPLs at a bare minimum to make profit from lending.

According to the RBZ, banks had therefore become increasingly risk averse due to the high NPLs on their books and had scaled down on fresh loans, which was deemed inimical to efforts by Government to grow the economy.

Upon acquisition of loans from banking institutions, ZAMCO became a creditor in the borrowing companies.

It has the power to determine turnaround strategies for the firms or even force liquidation if need be.

ZAMCO chief executive Dr Cosmas Kanhai, told The Herald Finance & Business that they had made major strides in resolving the NPLs with the majority of debtors selling their properties to settle debts.

He said those that had borrowed and failed to pay their loans had taken advantage of the prevailing inflationary conditions to dispose of their assets and
use the proceeds to settle outstanding loans with ZAMCO.

Dr Kanhai said ZAMCO was working on annual targets to ensure all loans are resolved by the entity’s 8th year in operation while the remaining two years of ZAMCO’s 10-year tenure will be used to foreclose on collateral.

ZAMCO will not leave in perpetuity but was set up for a specific period, 10 years, after which it should have dealt with or resolved the issue of all bad debts acquired from the banks and thereafter fold its operations.

“Our annual target is $140 million and as at November 30, 2019, we had $183 million, which means we surpassed our target for 2019.

“We work with a target to say every year we should at least resolve $140 million,” he said.

Dr Kanhai said because of inflation, corporate borrowers had also been able to generate more revenue to pay off their loans, but most of the funds used were proceeds from disposal of assets whose values rose with inflation.

ZAMCO acquired the NPLs from banks at a discount, but the size of “haircut” taken by each bank was dependent on the quality of collateral tied to specific loans.

In some cases banks were paid 20 cents for each dollar.

Dr Kanhai said the asset management firm was using various options for resolution of the NPLs including debt-to-equity swaps, loan-asset swaps, debt restructuring or where turnaround is not viable, liquidation.