Non-performing personal loans balloon

HARARE - Non-performing personal loans have ballooned to constitute a greater part of banks’ bad debts, a listed bank’s executive said.

Ronald Mutandagayi, ZB Financial Holdings Limited (ZBFH)’s chief executive, said the actual state of banks’ loan books is contrary to general belief that companies constitute most of the defaulters.

This comes as most banks, particularly indigenous, are battling to clean up “toxic” loan books with some making significant provisions to cover bad debts.

Mutangagayi said: a lot of individuals are overburdened and now constitute a significant part of the non-performing loans (NPLs)”.

“In the absence of a credit bureau, individuals are borrowing all over the show and are now overwhelmed from servicing the loans,” he told a media and analysts briefing on Monday, adding that “a major chunk of NPLs that banks are faced with are personal borrowings”.

Fanuel Kapanje, ZBFH’s finance director, also said the composition of most banks’ NPLs, including his group’s ZB Bank subsidiary, constituted the manufacturing sector, some agro players and the mining industry.

Recently, the Bankers Association of Zimbabwe (Baz) announced that NPLs in the financial sector have increased to an average of 16 percent from the 15,3 percent revealed by the World Bank in May last year.

The higher a bank’s NPLs go, the poorer its liquidity gets. Thus, lenders are exacerbating the prevailing liquidity crisis by lending to individuals and companies not creditworthy.

In 2012, Baz president George Guvamatanga said the country must establish a credit bureau to curb the growth of “toxic” loans and avoid malpractices in the banking sector.

He told an economic forum in Victoria Falls that banks did not have the aptitude to determine loan defaulters hence the need to establish a platform to protect them.

“The sector must take on all players to create the bureau so that the collapsing sector is saved from further collapse, members must be engaged even on interest rates,” said Guvamatanga, also managing director of Barclays Bank’s Zimbabwe unit.

He said NPLs had greatly affected the banking sector and immediate action was needed, adding that “at the moment banks do not have the capacity to determine who is borrowing from whom, some of them are choking”.

Guvamatanga said there was need to align interest rates — both on deposits and loans — with the level of non-performing loans.

The setting up of a credit bureau will reduce the vulnerability of banks to risky borrowers according to players in the sector.

Meanwhile,  ZBFH’s NPLs stood at $28,9 million in the year ended December 2013,  constituting 17,3 percent of the aggregate loan book with a total of 37 percent of the non-performing book having been set aside as specific provisions.

Comments (1)

More and more people are now getting involved into the problems with their. It is true that most people who have difficulties with income and making repayments take Canadian payday loans for bad credit. And banks themselves create the situation of bad debts.

Bobby - 8 April 2014

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