Zimbabwe unveils banks rescue package

Cabinet has approved the Zimbabwe Asset Management Corporation (Pvt) Ltd (Zamco), a National Special Purpose Vehicle (SPV), to acquire toxic non-performing loans (NPLs) from banks, Reserve Bank of Zimbabwe (RBZ) governor John Mangudya has said.

Zamco has moved in haste, and by mid August, the SPV had already acquired NPLs worth $45 million from three banks.

In his maiden, mid-term Monetary Policy Statement, Mangudya, who assumed office in May, said the SPV, which is being supervised by the central bank, would provide banks with the liquidity to fund valuable economic projects and restore confidence in the banking sector, presently at its lowest ebb.

The decision to set-up Zamco was taken after realising the ballooning level of NPLs, which rose from 15,9% in December 2013 to 18,5% as at 30 June 2014, threatening economic stability.

The RBZ said the surge in delinquencies and loan losses dampened banks' risk appetite, forcing many of the banks to adopt a risk averse approach to lending, resulting in a decrease in lending to business at a time when companies require working capital and funds for retooling.

Zamco, Mangudya said, would be funded by a combination of non-funded lines of credit, new inflows, long term bonds and treasury bills.

"Banks would sell NPLs to Zamco under commercial terms, assigning collateral and all other rights attached to the loans.

"Zamco would manage the loan portfolio professionally in order to obtain maximum recoveries over time. Once restructured, the troubled assets will be sold and the proceeds will be used to retire the borrowing, treasury bills or the bonds," said Mangudya.

He said the RBZ was optimistic the SPV would provide a holistic solution to the issue of NPLs in the banking sector.

"The restructuring of non-performing loans will provide relief to borrowers whose fundamentals remain strong but require reasonable funding costs and a tenure that can be accommodated in their cash-flows.

"The reduction of NPLs will therefore, help revive credit growth, spur activity of previously over borrowed clients and free up resources trapped in unproductive uses," he said.

The governor also revealed that 14 out of 19 operating banking institutions, excluding POSB, had complied with the prescribed minimum capital threshold of $25 million by June 30 June 2014.

The banking sector had a core capital of $753,09 million as at 30 June 2014 excluding Interfin Bank - under curatorship in comparison to $790,35 million in December 2013.

The reduction in the total core capital has been largely attributed to loan loss provisions and subdued earnings performance by some banking institutions.

He said four banking institutions were facing liquidity and solvency challenges due to macro and institution specific factors.

The RBZ said it was engaging the institutions to come up with credible plans to turnaround their waning financial condition to protect the interests of depositors and to promote banking sector confidence.

Despite the incessant liquidity challenges, the central bank said the banking sector has remained generally profitable recording an aggregate net profit of $13, 84 million for the half year ended 30 June 2014, up from $4,90 million during the corresponding period in 2013. Twelve banks recorded profits while a few recorded losses due to high levels of NPLs, high operating expenses and provisioning.