ZB holds on to $117m treasury bills

HARARE - Intergrated financial services group, ZB Holdings (ZB), says it will not dispose its $117 million Treasury Bills (TBs) any time soon despite significant systemic settlement risk posed by the government-backed papers.

ZB chief executive Ron Mutandagayi said the financial institution was not under pressure to off-load its TB portfolio, which increased 18 percent from $99,3 million a year ago,  prematurely before the expiry of their term.

“71 percent of the portfolio is designated as available for sale and the group will exit these positions only when doing so is considered to be the most beneficial thing to do,” Mutandagayi told an analysts briefing last week.

Market experts, however, said ZB might lose significant amounts of money by continuing to hold on to the TBs given the likely default by government on maturity of these securities.

Government, through the Reserve Bank of Zimbabwe (RBZ), has issued over $2,1 billion worth of TBs between 2012 and December last year, but the default risk has been high due to the fact that government coffers are empty and Treasury has been unable to fund even its basic commitments like civil servants salaries.

Some observers have argued that the government-backed paper has been a form of money printing, but given that Zimbabwe ditched its own currency in  favour of a multi-currency regime, this money did not have the backing of real currency and has therefore thrived in the virtual, real time gross settlement platform, with no physical notes to back it.

This, the observers say, may be the real reason behind government’s desperate decision to introduce bond notes late last year.

The commercial paper, which the government reintroduced in 2012, has been the biggest vehicle for State funding.

TBs hold the confidence of the markets in stable economies because of their backing by government, making them risk free.

But Zimbabwe has been struggling with its finances, which makes the risk of buying this paper high.

Mutandagayi, however, believes that government will not default judging by its recent payment record.

“An average discount above 15 percent was earned on secondary market TBs, $12,3 million was booked to statement of profit or loss .

“Capitalisation TBs (CTBs) have been discounted at five percent after an extensive study of probable rates was undertaken,” he said, adding the group had seen a $20,4 million contribution from Zamco TBs in 2016, up from the $13,7 million recorded prior comparable period.

Mutandagayi said Zamco provided credit relief to the group with TBs worth $3,7 million in 2016.

In the year under review, CTBs worth $13,5 million were issued to capitalise ZB Bank while TBs worth $83,4 million were sourced from the secondary market, up from the $68,5 million sourced for the same period in 2015.

Meanwhile, the ZB boss said as a result of the group’s unsustainable NPLs, the central bank had given ZB approval to create a special purpose vehicle (SPV) to house internal bad loans.

“NPLs with a net value of $9,6 million have been packaged within an SPV entity called Credsave (Pvt)Ltd. The security coverage on these assets equates to 141 percent. The search for suitors is underway.

“The NPL ratio increased in 2016; this is a result of interest accumulation on previously downgraded loans and a further downgrading of accounts during the year; this ratio remains amplified due to the lack of growth in the lending book,” he added.

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