Banks offload $400m NPLs to asset firm

Oliver Kazunga in Mutare
THE Zimbabwe Asset Management Company (Zamco) has so far absorbed over $400 million of the $750 million non-performing loans in the banking sector.

Zamco was established by the Reserve Bank of Zimbabwe in 2014 and started operating last year to harness the scourge of Non-Performing Loans (NPLs) by buying out commercial banks’ collaterised loan books.

Reserve Bank of Zimbabwe director for banking supervision, Mr Norman Mataruka, told delegates at the 6th Buy Zimbabwe annual summit here yesterday that tremendous progress had so far been made by Zamco to mop up NPLs.

“As of September 2014, NPL peaked at 20,45 percent to 10,8 percent as of March 2016. Banks have disposed qualifying NPLs to Zamco and as at the end of March 2016, Zamco had absorbed $418 million NPLs,” he said.

Mr Mataruka said the decline was due to NPLs’ disposal and more prudential lending by banks, adding that the monetary authorities are putting in place measures to curb reckless lending behaviour.

“We’re also working through the amended Banking Act to ensure that banks will not be doing any reckless lending.”

Finance and Economic Development Minister Patrick Chinamasa is on record as saying Zamco would not be absorbing bad loans that were recklessly given without due diligence.

The asset management company is buying out NPLs with a view to clean up the commercial banks’ balance sheets so that the institutions can confidently trade and lend.

Acquisition of NPLs is also meant to prevent moral hazards in the financial services sector.

Zamco’s strategy for funding NPLs comprises a number of options that include Government funding through long-term debt instruments approved in the 2015 national budget statement.

On the state of the banking sector, Mr Mataruka said since 2009, the financial services sector has remained generally safe and sound although about six small banks were closed in the past couple of years.

He said RBZ has implemented a number of measures to promote financial stability and economic growth.

“Despite the banking sector being sound, there are also constraints the market is grappling with. These include the general market illiquidity, inactive interbank market, high cost of borrowing as well as information asymmetry in credit markets resulting in adverse selection,” Mr Mataruka said.