Zim bad debt nears $1bn

HARARE - The Zimbabwe Asset Management Corporation (Zamco) has started acquiring bad loans secured by mortgage bonds, after assuming non-performing loans (NPLs) close to $1 billion in 2016.

A non-performing loan, according to the International Monetary Fund, is a credit that has not been repaid and is in default or close to being in default.

Central bank governor John Mangudya said during the first and second phases of the special purpose vehicle’s bad loan assumption, there had been

accounts that could not be taken up as they were secured by mortgage bonds.

“Zamco will be using other resolutions methods (other than loan restructuring) to resolve loans acquired in the third phase.

“This third phase should clear all eligible NPLs that would be offered by the affected banking institutions and is expected to be complete by March 31, 2017,” he said.

Zamco — formed to clean the balance sheets of local banks by assuming bad loans — had by the end of last year acquired NPLs amounting to $812,5 million comprising a proprietary portfolio worth $548,6 million and a managed portfolio of $263,8 million.

Mangudya said after the third phase, Zamco will stop further acquisitions and focus on resolution and resuscitation.

“This will curb moral hazard in the banking sector and is a standard practice internationally for all asset management companies formed to resolve NPLs.

“Going forward, the operationalisation of the credit registry would help the economy to contain NPLs,” he said.

In efforts to assume the country’s NPLs, Zamco has acquired NPLs from some of the country’s ailing companies and financial institutions.

Last year, the Reserve Bank of Zimbabwe-owned company assumed about $14 million of Metbank’s debts to regional lenders, as the bank moved to clean its balance sheet.

Zamco also has assumed about $17 million of Agricultural Development bank of Zimbabwe (Agribank) NPLs with Starafrica corporation disposing $32 million debt to Zamco.

It swallowed Cottco’s $56 million debt and took over NMB Zimbabwe’s loans amounting to $11,6 million.

Following the formation of Zamco, Zimbabwe’s NPLs

declined to the prudential regional benchmark of five percent from about 14,2 percent.

Zamco received technical assistance from International Monetary Fund (IMF) in crafting its legal and governance structures and has put in place appropriate governance structures for its operations, with a 10-member board that directs the operations of the corporation.

Under the company’s by-laws, it must not exceed a 10-year

operational duration, after which, government expects banks and companies to have put their houses in order.

Zamco has also developed a valuation and pricing policy used in establishing the prices at which loans are set to be acquired, with loans being acquired at a discount.

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

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