adminRoberta Katunga Senior Business Reporter
LISTED financial services group FBC Holdings has resorted to selective lending to reduce its credit risk exposure, a move that economists have lauded as sensible considering the growing number of Non- Peforming Loans (NPL). Group chairman Mr Herbert Nkala said in his statement accompanying the group’s unaudited interim results for the six months ended 30 June that the industry’s non-performing loans ratio at 14,52 percent as at 30 June 2015 remained high and had resulted in banks slowing down on lending and applying stringent lending conditions.
“The group has reduced its credit risk appetite and has resorted to selective lending, given the high risk of default in the market,” said Mr Nkala. He, however, said the slowdown in lending would slow down economic growth. For the period under review, the bank’s NPLs stood at 15,9 percent which is 1,38 percent higher than the industry’s ratio. However, FBC is not the only banking concern that has resorted to selective lending in a bid to counter defaults with ZB Financial Holdings also reducing its lending rate. According to the bank, loans and advances stood at $132,4 million compared to $146,1 million the previous year.
ZB Financial Holdings’ NPL ratio increased to 31 percent from 29 percent, a development chief executive officer Mr Ronald Mutandagayi attributed to a reduction of advances book as payments are made. He told analysts that a significant portion of the NPLs were in the mining and agriculture sector. Meanwhile, the Reserve Bank of Zimbabwe has set NPL targets at 10 percent by 30 June 2016 and five percent by 31 December 2016. A non-performing loan refers to a loan on which the borrower is not making interest payments or repaying any principal and in some instances many loans become non-performing after being in default for 90 days, but this can depend on the contract terms.
Economist Mr Kipson Gundani said selective lending was a business decision that made economic sense although traditional lending was basically selective in its approach.
He said the only difference was that banks were now putting additional variables and giving money only to customers they know. “This decision is synonymous of prevailing economic environment. Default rates are higher and as a lender if you are too lenient it results in more NPLs. It is essential to put your money where it is productive,” said Mr Gundani. He said it was important for banks to apply stringent lending conditions because they were holding depositors’ money.
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