Lately, some concerns have been raised from some quarters about the relevance of establishing the Zimbabwe Asset Management Company (Zamco).
By Omen Muza
A recent manifestation of this view is Chris Chenga’s opinion piece in The Sunday Mail recently titled Zamco is not worth the bill.
In this article, I do not seek to refute the views of Chenga’s school of thought; I simply want to offer the alternative viewpoint that Zamco is an idea whose time has come.
Firstly, let me offer the perspective that the issue at stake is not one of merely resolving non performing loans (NPLs), but a broad programme to ultimately deliver sustainable banking sector stability.
Against this background, Zamco should not be seen as the silver bullet for NPLs, but as part of a package of measures aimed at achieving this broad objective.
In recent memory the Reserve Bank of Zimbabwe governor has clearly articulated (at Inaugural the Financial Sector Indaba and at the IOBZ graduation ceremony) that this process is a multi-pronged one and the preferred sequence of events involves resolution of NPLs (dealing with the existing problem), setting up a national Credit Reference Bureau (ensuring it does not happen again, at least to the same extent) and finally re-introducing the interbank market (to enhance market liquidity).
In other words, throwing money at the NPL problem will simply not work before the cancer of NPLs is cured.
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Secondly, Zamco should be seen as part of market infrastructure that the credit markets need for optimal functionality and if such infrastructure had predated the NPLs buildup, perhaps it would have helped to check their growth by dealing with them in bite-size chunks.
Now Zamco has to eat this elephant in the room all at one go.
My view is that instead of Zamco being positioned as a once-off intervention meant to deal with the current NPL problem, there should be capacity to resolve NPLs on an ongoing basis.
This should be resident in market infrastructure such as asset reconstruction companies (ARCS) because there is always some level of NPLs in the economy, though the banking sector alone cannot sustainably manage such bad assets given the huge capital requirement needed for that purpose.
It is also important to see the NPLs situation for what it is — not just a banking problem but a national problem created in part by government’s own commissions and omissions at a policy level.
Since government is part of the problem (it also owes a lot of money which is now either part of the NPLs logjam or is indirectly fueling it) it must also be part of the solution through appropriate regulatory/legislative interventions.
Granted, government does not have the requisite financial resources, but it can at least deploy its regulatory resources — despite their obvious limitations in an illiquid environment — to begin righting the wrongs. And Zamco is just one of these interventions when it comes to dealing with NPLs, not the only one.
I doubt that part of Zamco’s mandate or scope is to solve some of the issues (a number of which are at a macroeconomic level) sited by its critics as causative to NPLs.
Though issues such as high interest rates, mismatches in tenor between available loans and funding needs (amongst others) have been instrumental in the growth of NPLs, they are only partly responsible and cannot be exclusively culpable, the same way Zamco cannot be expected to be the sole solution to the scourge of NPLs.
In fact, the impact of Zamco should not be overestimated as it will only take on those bad loans which are adequately secured.
Although some choose to accuse the RBZ of not implementing enough regulatory programmes to improve banks’ underwriting capacity, I see Zamco’s selective purchasing of bad loans as a policy intervention in its own right – in a nutshell banks are being told to lend responsibly or face the consequence of irresponsible lending behaviour.
This is called tough love, which I think deals adequately with the problem of moral hazard.
Admittedly, our economy cannot be compared to others where infrastructure comparable to Zamco works, but it must also be understood that our NPLs ratio has its roots in the dollarisation of the economy.
With entire balance sheets wiped away progressively by hyperinflation and dollarisation being the last straw that broke the camel’s back, companies had no choice, but to borrow in order to sustain operations.
Unfortunately some did not borrow responsibly and their transitional models from the ZWD era to the dollarised environment were faulty — borrowing at high interest rates on the basis of unsustainably high margins against the background of re-aligning fundamentals.
However, this irresponsible borrowing (and lending) behaviour does not absolve government of its own policy failures which led to hyperinflation, so it must accept its fare share of culpability and do what has to be done.
The reality that the authorities had to accept sooner rather than later is that once NPLs had risen to current levels, there was no way out of the trap without some sort of bailout mechanism – Zamco in this case. The bitter medicine must be swallowed.
While the naysayers choose to believe that Zamco “is premature,” and “give it a nay” I think that it actually is an idea whose time has come — it may have been delayed but it cannot be denied, not now, not ever.
It, however, cannot and won’t work in isolation, so it shouldn’t be criticised in isolation.
If we chose to see Zamco as the be-all-and-end-all of NPLs, then it’s easy to be dismissive of it, but if we begin to see it as part of a broad array of initiatives working in concert to craft sustainable banking sector stability, we will certainly find it difficult to dismiss it. Feedback: [email protected]. Omen N Muza writes in his personal capacity. You can view his LinkedIn profile at zw.linkedin.com/pub/omen-n-muza/30/641/3b8
