HARARE - Zimbabwe's Non-Performing Loans (NPLs) are expected to decline to nine percent in 2016 from about 14,2 percent, following the establishment of a government special purpose vehicle to house bad loans, an industry body has predicted.
A non-performing loan is described by the International Monetary Fund (IMF) as a credit that has not been repaid and is in default or close to being in default.
In its Economic Outlook for 2016, the Zimbabwe National Chamber of Commerce (ZNCC) said the acquisition of non-performing loans by Zamco will be instrumental in the resuscitation of distressed companies such as Cottco, Cairns Foods and Border Timbers among others.
“However, fears intensify as a result of Zamco acquiring secured NPLs only… The purchase of NPLs by Zamco has resulted in an avenue for banks to resume new lending,” the industry body said.
While the prudential regional benchmark for NPLs is five percent, bad loans in the country’s banking sector escalated to an average 20 percent in October 2014 from 18 percent in June 2014. But, the NPL ratio retreated to 14,27 percent at the end of September 2015.
To date, Zamco has assumed a total of $371 million collateralised debt out of the country’s over $700 million NPLs, since it began operations last year
Credit is expensive in the country at the moment as most lending institutions price risks when availing a facility, but the central bank anticipates that scrapping the risk cost being shielded by depositors will lower NPLs.
A 3,1 percent increase in money supply was recorded in the third quarter of 2015, a fact the ZNCC said pointed to an improvement in confidence within the banking sector.
“The confidence in the banking sector has also been boosted by the reduction in non-performing loans (NPLs). The year 2016 hopes to see the banking sector improving in terms of building confidence in the financial sector with Zamco acquiring NPLs in the banking sector,” the industry body said.
The recovery in credit growth is also attributable to the acquisition of the banking sector’s NPLs by Zamco.
Domestic credit increased from $5 030,7 million in June 2015 to $5 079,8 million in September 2015.
“However, the outlook in 2016 views the banking sector improving and building confidence within the economy that can lead to investment inflow within the market which is expected to reach the $600 million mark…” said ZNCC.