Zamco to conclude restructuring exercise

The Zimbabwe Asset Management Corporation (Zamco) is at advanced stages of concluding the restructuring of transactions of four distressed companies amounting to $68 million, an executive said last week.

BY TATIRA ZWINOIRA

Zamco was set up last year as a special purpose vehicle to buy secured non-performing loans (NPLs) on banks’ balance sheets to create room for them to lend again.

Speaking at the KPMG IFRS Business seminar 2015 last week, Zamco acting chief executive officer Cosmas Kanhai said these transactions are expected to be concluded by September 30.

“Zamco is at advanced stages of concluding restructuring transactions for four companies, with a combined value of $68 million,” he said.

“We are currently focusing on acquisition of eligible loans offered by banks that are in the top 100 across the banking sector.”

The high default rate has been haunting banks amid fears they would cut back on lending, which is critically needed to reboot the economy.

The ratio of NPLs peaked to 20,45% in June last before decelerating to 14,52% a year later.

But a recent Zamco study showed that the NPL ratio has grown to 14,64% by July 15.

The total NPLs as at June 30 stood at $577 million, with Zamco assuming $158 million.

Kanhai said going forward, Zamco is set to fund its operational expenditure through revenue generated from its activities.

“The acquisition of NPLs will be funded by government through Treasury Bills. Treasury bills are for a tenure of 12 years and have a coupon rate of 5%. Banks will be given Treasury Bills in lieu of the acquired NPLs,” Kanhai said.

The Reserve Bank of Zimbabwe established Zamco as part of holistic measures to resolve the problem of rising NPLs
The corporation is modelled along similar lines as companies formed in other countries such as in South Korea (Korea Asset Management Corporation), Nigeria (Asset Management Corporation of Nigeria), Indonesia (Indonesian Bank Restructuring Agency) and Malaysia (Danaharta).

Zamco has a 10 member board and received technical assistance from IMF in December 2014 and February 2015. The purpose of the technical assistance is to ensure that Zamco processes and procedures are in line with international best practice.

“The overall goal is to reduce the level of NPLs to below the international benchmark of 5%. Zamco is only one of the measures being pursued to deal with high NPLs in the banking sector,” Kanhai said.

Zamco’s strategy for purchasing NPLs will be selective and based on certain eligibility criteria.

These include loans classified as substandard, doubtful and loss in terms of, loans secured by mortgage with legally transferrable and executable security rights and which are not insiders, purchase of NPLs, whose removal are considered critical to the rehabilitation of the sector and such other NPLs, which Zamco can deem fit from time to time.

“The NPLs acquisition approach is meant to avoid creating moral hazard in the banking sector. This will avoid Zamco being seen as pardoning past bad lending decisions. There is no law that compels banks to sell NPLs. Sale will be on the basis of ‘willing-buyer-willing-seller basis,’ ” Kanhai said.

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