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Minister Chinamasa

Business Reporter
THE Zimbabwe Asset Management Authority has shifted focus to resolving bad loans after completing the second phase of its mandate.

Chief executive Dr Cosmas Kanhai said in an interview yesterday that Zamco had completed the second phase of its task, which was the acquisition of bad loans. A total of $840 million was acquired and the third and final phase was resolving the NPLs.

And on Monday, Finance and Economic Development Minister Patrick Chinamasa told an Agribank annual general meeting that the bank needed to continue working on reducing its NPLs, currently at 14 percent, to the RBZ threshold of 5 percent, as Zamco would not be taking anymore bad loans from the local banks.

RBZ Governnor Dr John Mangudya is on record saying Zamco would not be there forever, but would be disbanded after serving its purpose, which the central bank chief estimated at just about 10 years.

Prior to RBZ’s interventions, including through acquisition of bad loans in the banking sector by Zamco, NPLs had grown to an average 20 percent, a development the central bank said had started sterilising fresh loans to productive sectors on cautious lending.

The Zamco CEO stated candidly that the special purpose vehicle had never been set up to merely warehouse bad loans, but to take the burden of NPLs, belonging to firms with realistic chances of being redeemed, off the books of banks and to allow the banks to extend fresh credit to productive sectors.

He said focus had now been put on resolving the NPLs, looking at loans individually and determining if they could be turned around to perform and therefore remain on Zamco books, or were beyond redemption and had to be foreclosed or swapped for collateral. Acquisitions of NPLs, he stressed, had been ended in March.

Dr Kanhai said Zamco had always had a phased approach to tackling the problem of NPLs in the banking sector with the first stage being setting up of the SPV, then loan acquisition and final the mandate being the resolution of bad loans acquired from the banks. He said Zamco had only acquired NPLs after evaluating and satisfying itself that the loans in question were secured and burdening companies that had a good chance of being turned around. Companies that have benefited from the acquisition of bad loans by Zamco include Cairns, Border Timbers, RioZim and Cottco.

“The second phase of the process ended on March 31, 2017 which is the date when we last acquired loans and as at March 31, we had $840 million. We acquired loans from business that are capable of being turned around. We are now looking at resolution of the loans. For the loans that cannot be paid because the businesses cannot afford, we will find ways of resolving the NPLs such as foreclosure or swapping the loan for security,” he said.

Minister Chinamasa said Zamco was formed to takeover toxic loans to give banks new appetite to take risk and lend to productive sectors, but said word was out from RBZ that its SPV formed to clean the banking sector had since stopped taking NPLs.

“Word has gone round from the Reserve Bank that they will no longer be taking non-performing loans. In other words, we expect the lending institutions . . . to be careful in their risk assessments. This is going to be helped by amendments to the Banking Act. The Reserve Bank has set up a credit reference bureau and gone are the days of those people who used to borrow from every institution without any intention of paying back,” he said.

The problem of high rates of NPLs in the banking sector followed the switch to dollarisation in 2009, coming when the country scrapped its domestic currency, which had been ravaged by inflation. After dollarisation individuals and corporates went on frenzied borrowing with, analysts said, mentality of the Zim-dollar era.

As time went by, the real value of a predominantly US dollar currency, in a country that had legalised transacting in several other foreign units, started to show, as returns from business and individual incomes could not match the size of debt payment obligations.