Polls stall credit bureau

HARARE - Plans to set up a credit rating bureau — targeted at reducing information asymmetry between lenders and borrowers — could be slowed down by election preparations, Bankers Association of Zimbabwe (Baz) said.

George Guvamatanga, Baz president, said considering the pressures to bankroll the election process, funds may not be immediately available to finance establishment of the bureau.

He told businessdaily that establishment of the long-overdue agency is at an advanced stage with consultations of the central bank and Finance ministry ongoing, but the looming election may “steal the spotlight.”

Zimbabwe is expected to hold watershed elections this year, but the date is yet to be set.

“The country is holding elections and in terms of financing the bureau may not be high on the priority list” Guvamatanga said.

“We will, hopefully, have a viable bureau by the end of the year,” he said.

Establishment of the credit bureau will help financial institutions make informed lending decisions, support automated underwriting and lower operational costs and risks for banks.

Once established, the bureau would help lenders assess credit risk more accurately and help in lowering the cost of borrowing.

However, in his 2013 Monetary Policy, Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono said the reference bureau would be completed by end of the first quarter of this year.

“The completion of the framework, which is targeted for March 2013, will pave way for the commencement of operations by accredited bureaus,” the central bank boss said.

Banks have been negatively affected by an increasing level of non-performing loans owing to the absence of a credit bureau, and with the crunch of a Memorandum of Understanding signed between Baz and the central bank, the effect will be aggravated without a credit bureau.

Baz has been pushing for the establishment of the bureau since 2009 in a bid to promote the exchange of credit information among lenders in the sector, largely affected by non-performing loans.

“We recognise that the absence of a credit bureau has created information asymmetry which is being exploited by borrowers who commit against the same cash flows from different banks.

“This is resulting in the discounted cash flows of the said borrowers not being able to service debts.

“We estimate that most firms and individuals in the market could be over-borrowed and this may be contributing to the current state of acute debt overhang and cases of unsustainable levels of default in the banking sector,” Guvamatanga said.

The bankers said this phenomenon was a major driver of non-performing loans in the banking sector, estimated to be seven percent of advances. However, the figures could be higher if debt rollovers or the restructuring of loans to overdrafts were included in the calculations.

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