Banks have so far offered $188 million worth of NPLs for takeover by the Zimbabwe Asset Management Company while a further $68 million NPLs from loans taken by four companies are being evaluated. Financial institutions are sitting on about $577 million worth of NPLs and banks reserve the right to decide the bad loans they want acquired by ZAMCO.
ZAMCO acting chief executive Dr Cosmas Kanhai said the asset manager would use a combination of sources to finance the takeover of NPLs after the company received $45 million from PTA Bank to fund the process. Dr Kanhai said the Reserve Bank of Zimbabwe’s special purpose vehicle would also issue Treasury Bills to mobilise funds to pay for acquired NPLs.
The TBs will also be used by banks to obtain liquidity. They are discountable for cash and can be pledged as Government guaranteed security for liquidity support. Further, the TBs are acceptable to the RBZ for calculating capital adequacy. Dr Kanhai said ZAMCO had also set up a sinking fund to help finance the purchase of bad loans from bank to help free up their balance sheets.
He made the remarks yesterday during KPMG’s annual international financial reporting standards and business seminar in Harare yesterday. “Part of the funds have come from other sources, $45 million to be specific was funded by the PTA Bank. Banks will (also) be given TBs in lieu of NPLs. Coupon rate will be 5 percent over a tenor of 12 years,” he said.
Responding to a question from delegates at the seminar about whether Government will not default on TBs, he said that the Government had given assurances that all the coupons will be paid on time and fully on maturity. The ZAMCO boss said the need to honour obligations was discussed extensively with Government, given the need to rebuild confidence in the economy.
However, ZAMCO will only acquire NPLs secured by a mortgage bond, non-insider loans and NPLs for companies with a good chance to be turned around. Foreclosure of non-viable loans would be the last option for ZAMCO, but emphasis will be placed on giving priority to loans or entities with a high chance for revival.
Dr Kanhai said benefits of the debt assumption will accrue to both banks and companies. Banks will unlock funds to support borrowers’ needs while companies will get longer period to repay at lesser rates of interest. Companies saddled by NPLs will get lower interests of between 6 percent and 10 percent over the 10 years that ZAMCO will be in operation.
This provides more time for the debt distressed firms to turnaround their fortunes, considering most loans extended by banks were for short periods. But Dr Kanhai said ZAMCO will not exist in perpetuity to avoid creating moral hazard in the banking sector, but will be folded up after a period of 10 years.
“After completing acquisitions, focus will shift to resolution of the acquired NPLs. The target is to complete the acquisitions by end of 2015,” Dr Kanhai said. Opportunities for ZAMCO include acquisition of the bank debt of distressed companies investors and conversion of the acquired NPLs into equity.
The asset manager can also participate in a scheme of arrangement through acquisition of the bank debts and then restructuring the bad loans. The NPLs resolution methods to be utilised by ZAMCO fall into two broad approaches: firstly converting NPLs into performing loans mainly through restructuring of either the loan or the borrower i.e. corporate restructuring or both and disposal of the NPLs including underlying collateral.