Don't attach debtors' property, RBZ tells banks

HARARE - Reserve Bank of Zimbabwe (RBZ) governor John Mangudya says banks must not attach defaulting debtors’ properties, but restructure bad debts instead.

This comes on the back of a wave of property auctions and seizures by bailiffs, as banks — burdened by ballooning non-performing loans (NPLs) estimated at around $700 million — are increasingly attaching defaulters’ assets to recoup loaned funds.

Mangudya said the institutions must adopt “a different approach” in dealing with the bad loans.

“I have told bank chief executives to have a developmental approach and not attach properties of loan defaulters. We must manage NPLs by restructuring them,” he told a Africa Leadership Convention on Offshore Investment workshop yesterday.

“It doesn’t make sense if you liquidate a company and get half of the money you are owed. The best way is to restructure the loan and give defaulters more time to pay,” said Mangudya adding that is the only way to capacitate companies and create employment.

A bad debt is a loan that is in default or close to being in default, with many being classified as non-performing after non-payment for 90 days.

In the face of the prevailing tough economic environment in Zimbabwe, borrowers’ repayment capacity has been severely constrained.

Mangudya added that the current situation where short-term loans fund long-term projects is not sustainable as it exacerbates bad debts.

As part of efforts to curb the NPLs, the RBZ recently created the Zimbabwe Asset Management Company (Zamco) — a special purpose vehicle that houses the “toxic” debts.

About $60 million has already been absorbed by Zamco, according to RBZ statistics.

Market experts say an increase in NPLs has a negative effect on the economy as resources are locked in unproductive projects thus hindering economic growth and efficiency.

Since the introduction of the multiple currency system in 2009, several banking institutions have collapsed due to poorly performing loan books, although the bulk of the institutions have been accused of shareholder and management delinquency, with insider loans playing a key role in their insolvencies.

Curators have often found it difficult to recover lent funds due to the fact that most loans were extended without or with meaningless collateral. These are normally loans extended to directors, management or their cronies and issued without collateral.

Most banks have been aggressively pushing salary-based loans with the primary condition being that the income should pass through the lending bank.

Market watchers also say that another possible cause for increasing NPLs has been multiple borrowing at different banks by individuals and companies.

To mitigate this risk, the central bank is currently working on establishing a central credit registry system.

The system will comprise private credit reference bureaus (CRBs) and a registry within the RBZ which will serve as a databank for licensed CRBs.

The credit reference system will complement the work of Zamco to minimise bad debts in the banking sector.

The bureau would enhance the verification process of borrowers, enabling bankers to assess credit risk and reduce the level of NPLs in the banking sector.

The system would also allow lenders to determine how much and at what rates to lend.

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