Zimpapers Logo

Golden Sibanda : Senior Business Reporter

ZB Holdings plans to set up a special purpose vehicle to hive off non-performing loans from its balance sheet in line with the central bank prescribed limit. The Reserve Bank of Zimbabwe directed that all banking institutions should reduce the proportion of their NPLs to total loans to below 10 percent by the end of June 2016.However, ZB recently indicated that its ratio of NPLs to total loans was unlikely to fall below 10 percent by end of June in order to comply with the directive.

Group chief executive Ron Mutandagayi said in an interview yesterday that ZB is in the process of informing the Reserve Bank of Zimbabwe of its plans to set up the SPV.

This comes as the group continues to aggressively pursue ongoing efforts to recover the bad loans, as part of broad efforts to clean up the group’s balance sheet.

“We are going to create a special purpose vehicle to take over the NPLs off the balance sheet. We will then market the SPV,” he said.

He said that once the NPL’s, which he said stand at 19 percent of the loan book, have been moved over to the SPV, an investor would be sought to acquire the new entity.

The investor would aggressively pursue the bad loans to recover all amounts owed, which would create space on the bank’s balance sheet to issue fresh loans.

Mr Mutandagayi would not immediately indicate ZB’s current level of loans and advances.

Already, the diversified financial services group has agreed with the RBZ’s special purpose vehicle for the takeover of $6,3 million worth of NPLs from its books.

Mr Mutandagayi earlier said that the $6,5 million NPLs would be taken over by ZAMCO at 56 percent discount “That process has already been completed,” he said.

ZB contends that managing the level of its non-performing loans remains a key focus of its operations amid tight liquidity and difficult macro-economic conditions.

The RBZ formed the Zimbabwe Asset Management Company in 2014 to manage the growing “cancer” of bad loans in the banking sector, which threatened fresh loans.

A significant number of banks had started scaling down on issuing new loans to productive sectors amid growing fears most borrowers would not bay back.

The purchase of NPLs by ZAMCO brought down NPLs in the sector from 20 percent in 2014, to 11 percent by December 2015 after it bought $367 million NPLs.

Giving a trading update of the group in May for the period to April 2016 Mr Mutandagayi said one of the ways it could use to reduce NPLs is to increase new loans.

However, he said aggressive issuance of new loans would not resolve the underlying macroeconomic problems and could also lead to poor asset quality.