BAZ speaks on bad loans

HARARE - Reserve Bank of Zimbabwe (RBZ)’s move to create a special purpose vehicle that houses $700 million non-performing loans (NPLs) will help ease the liquidity crisis in the country, the Bankers Association of Zimbabwe (Baz) has said.

Sam Malaba, the association’s president, said the vehicle was very important for the banking and financial sector.

“Baz welcomes this development which has potential to enhance financial intermediation and credit availability in the economy.

“Banks are currently weighed down and saddled by non-performing loans,” he said.

“The special purpose vehicle will enable banks to create capacity for new lending, hence ameliorating the current liquidity challenges facing the economy for the benefit of the productive sectors,” he added.

This comes after central bank governor John Mangudya last week established a national special purpose vehicle, Zimbabwe Asset Management Corporation (Private) Ltd (Zamco), to takeover NPLs from banks in order to clean up and strengthen their balance sheets.

The move will also provide financial institutions with the liquidity to fund valuable projects for the economy to rebound and to mitigate loss of confidence.

Globally, NPLs have been a hindrance to the financial sector and economic stability, and growth of economies.

Mangudya said the RBZ was cognisant of the problems posed by high levels of non-performing loans which exceed the international benchmark of up to five percent and can be a threat to financial stability and economic growth.

“As such, addressing the problem of non-performing loans is essential in order to invigorate the Zimbabwean economy.

“The resolution on non-performing loans is therefore a necessary condition to improve the economic status of the country and to address the vicious circle of low economic growth, company closures and banks vulnerability,” he said in his maiden monetary policy.

According to the central bank, non-performing loans have been rising from 1,6 percent in 2009 to 18,5 percent ($705 million) as at June 2014.

Market experts say that apart from being a source of concern for financial stability, there is strong evidence that non-performing loans have led to a decrease in credit growth which is undermining current economic recovery efforts.

The central bank chief said the surge in non-performing loans in Zimbabwe was causing banks to cut on lending to business at a time companies require working capital and funds for retooling.

“This is now having a huge bearing on the economy as reduced credit is leading to a decline in economic growth, private consumption, job losses and decrease in government revenue, that is, taxes,” he said.

Mangudya argued that the creation of Zamco would provide a holistic solution to the issue of non-performing loans in the banking sector.

 

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