Zimbabwe's credit bureau takes shape

THE Reserve Bank of Zimbabwe's efforts to set up the Credit Reference Bureau (CRB) has received a major boost after banks submitted information on 90% of their loans to the registry as the central bank moves to clamp down on non-performing loans.

CRB resumed its operations after Czech Republic credit checker, Creditinfo was in April last year awarded the tender by the apex bank to set up the system at a cost of $1,8 million with a view to improve credit risk management in the country's financial sector.

RBZ governor John Mangudya last week told Standardbusiness that the CRB was working well and 90% of the bank loans had been put into the registry.

"We are quite happy with the response that has come from banks and we are also pleased by the response from other entities in the market," Mangudya said last week.

"The usage is good. Most banks have now given us the information.

"Almost 90% of their loans have been put into the registry and we are happy about that."

The credit reference bureau is anticipated to improve the banks' non-performing loans (NPLs) ratio which declined to 7,87% as at 31 December 2016 from a peak of 20,45% courtesy of the disposal of loans to the Zimbabwe Asset Management Company (Zamco).

While it is unknown whether the operationalisation of CRB will curb the accumulation of NPLs, Mangudya said the termination of Zamco was justified, saying the body had served its purpose of absorbing firms' bad loans from banks.

"Zamco said we will close for taking NPLs because we can't continue opening the window for it will cause moral hazards," he said.

"People were taking loans and becoming reckless and if the registry is working very well it means banks can now mitigate their risks by not giving loans to those individuals who don't pay back.

"The whole purpose of Zamco was to resuscitate companies and firms that had been incapacitated by NPLs.

"The window of two years was quite long for them to be resuscitated.

"There is no country in this world which does not have NPLs but the international acceptable level is between 5%-7,5%.

"We don't want them to go above that."

As at December 31, 2016, sectors with the largest proportions of NPLs were individuals, commercial, mining and agriculture sectors, which constituted 18, 41%, 14,30%, 13,13% and 12,28% of total non-performing loans, respectively.

Economist Clemence Machadu believes the system will allow lenders to sell their products and services on credit to access good customers with good credit background.

"The system will allow lenders and those who sell their products and services on credit to access good customers and for customers with a good credit background to obtain credit at better terms," he said.

"Right now banks are concentrating their lending on a small enclave of the population, mainly composed of secured loans which allow them to sell collateral when worse comes to the worst, as well as civil servants because they know they can easily get the money through the Salary Service Bureau.

"Banks hitherto didn't know about the characteristics of other clients, to enable them to come up with packages that suit such categories.

"Now they are able to widen that important understanding, and it will enhance lending confidence."

If run efficiently, the bureau would ease banks' financial risks as they would now be able to first check whether the client is solvent or not before extending loans.

This decreases the probability of bad debts and possibly drive banks to fund development projects.

Of the $3,69 billion loaned by banks in 2016, a huge chunk amounting 28,7% went to individuals, agriculture got 16,7%, distribution 15,3%, services 14,95 % and manufacturing sector got 10,4%.

"I think it will change the architecture of lending and skew it towards the unusual suspects," Machadu said.

"Firstly, I see unsecured personal loans increasing, as banks use someone's credit history as "collateral" when lending.

"Again, I see lending to the informal sector increasing; because at the moment most of the requirements being asked for loans applications by banks are compatible to a highly formalised economy, which we are not.

"In Zimbabwe, only 5% of the working population is employed in the formal economy with 95% being employed in the informal sector.

"So where do they get the payslips or HR approval from? So, after this, more credible clients from the informal sector will certainly start accessing loans."
However, economist Eddie Cross said setting up the CRB will make lending slower and more cumbersome.

"This is a double edged sword in that it will give lending agencies more information on which to base lending decisions while at the same time it will make decision making slower and more cumbersome and may restrict credit to otherwise sound investments," he said.