CABINET has approved the setting up of a national special purpose vehicle (SPV) to house non-performing loans (NPLs) that have threatened the financial sector, Reserve Bank of Zimbabwe (RBZ) governor John Mangudya said yesterday.
He said $45 million had been acquired by the vehicle from three banks. 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.
In his maiden Monetary Policy presentation, Mangudya said the SPV, known as the Zimbabwe Asset Management Corporation (Zamco), would buy NPLs from banks under commercial terms.
Mangudya said Zamco, in acquiring the NPLs, will clean up and strengthen banks’ balance sheets and “provide them with the liquidity to fund valuable projects for the economy to rebound and to mitigate loss of confidence”.
He said Zamco would be funded through a combination of non-funded lines of credit, new inflows, long-term bonds and Treasury bills. Mangudya said the terms would include assigning collateral and other rights attached to the loans to SPV.
“Once restructured, the troubled assets will be sold and the proceeds will be used to retire the borrowing, treasury bills or the bonds. NPLs in an amount of $45 million have already been acquired by Zamco from three banks as at 15 August 2014,” Mangudya said.
NPL’s have been rising from 1,6% in 2009 when the country adopted the multi-currency to 18,5% ($705 million) as at June 2014.
Mangudya said the NPL’s have been a source of concern for financial stability and have led to a decrease in credit growth which has been undermining the current economic recovery efforts. Mangudya said the Special Purpose Vehicle will restructure, rehabilitate and recover funds under the non -performing portfolio.
He said NPL’s were a result of weak corporate governance practices, risk management systems, high cost structures, obsolete equipment and intense competition from cheap imports.
“The situation in which banks are saddled with high NPLs that do not decrease and remain at high levels for a long period would result in the prolonged stagnation of the economy,” he said.
Figures shows that 150 debt ridden families were losing homes and others were having their properties attached to service loans every month.
Analysts had raised concerns that the increase in NPLs would result in banks cutting back on lending at a time the economy needed lines of credit to reboot the various economic sectors.