GOVERNMENT plans to set up a Special Purposes Vehicle to house non-performing loans (NPLs) as part of measures to restore confidence in the banking sector, Finance minister Patrick Chinamasa has said.
VICTORIA MTOMBA
Statistics from the central bank showed that the ratio of NPLs to total loans increased to 16,96% as at March 31 2014, up from 15,92% as at December 31 2013.
An NPL is when payments of interest and principal are past due by 90 days or more, or at least 90 days of interest payments have been capitalised, refinanced or delayed by agreement.
Chinamasa told the Parliamentary Portfolio Committee on Finance and Economic Development on Monday that NPLs were weighing down the proper functioning of the sector.
“We are working on measures we hope will find traction in the next month or so. I don’t know when we will be in a position to announce what we will do. We are not yet ready,” Chinamasa said “One of the solutions is basically to remove the NPLs from the balance sheet of financial institutions and put it in a Special Purpose Vehicle and see whether we can recover especially when there is collateral like what happened with the Bank of Credit and Commerce of China. These are some of the ways of going forward.”
Other African countries such as Nigeria have come up with SPVs to house non-performing loans. In 2010, Nigeria established the Asset Management Corporation of Nigeria (AMCON) to resolve the non-performing loans and assets of banks.
Chinamasa said NPLs have affected a handful of banks not the entirety of the financial sector which he said was sound. The rise in NPLs had raised fears that banks would cut on lending at a time companies require financing to retool and for working capital needs.
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Chinamasa said banks with problems have a smaller share and assets in the sector.
He said banking deposits were at $4,7 billion up from $4 billion. “The deposit levels have remained consistent at $4 billion in our financial sector. The nature of the deposits is short-term which leads to liquidity. 95% of these deposits if not more are demand deposits. The financial sector cannot lend medium to long-term because they do not know when the depositor comes to demand from them,” he said.
He said he was going to bring a number of Bills to restore the banking sector and to instil good corporate governance at parastatals.
These include amendments to the Banking Act, RBZ Act to restore its role to that of mobilising resources.
