Zamco gives grace period for bad loans

The Zimbabwe Asset Management Company (Zamco) will allow an eight-year moratorium on all restructured non-performing loans (NPLs) before the central bank's bad loans cleansing special purpose vehicle (SPV) starts enforcing foreclosure, chief executive Cosmas Kanhai said.

Dr Kanhai said ZAMCO was formed in 2015 with a 10 year mandate to rid the banking sector of all non-performing loans after which the special purpose vehicle is anticipated to wind down its operations.

Barring exceptional developments that may compel the Reserve Bank to change its mind, Zamco will fold operations after 10 years, but must have fully resolved the $1,2 billion it has acquired.

Dr Kanhai said Zamco will give all bad loans a moratorium of 8 years and NPLs that will fail to perform within the grace period will then be foreclosed through takeover of the security pledged against them.

"What we have done deliberately, because we have a 10 year life cycle, for the loans we would have restructured we give them a maximum of eight years so that after those eight years, for those that will still have not paid, we will have some two years to enforce foreclosures," he said.

Zamco acquired non-performing loans for companies that demonstrated potential to start generating healthy cash flows and showed potential for profitability once their corrosive NPLs were acquired.

"When we see that the business has no potential to generate cash to pay for the loan, we can propose to the customer to pay in kind because most of the securities that we take are real estate," he said.

Dr Kanhai said where one elects to give up their security, valuations are down and property transfers effected. However, he said once issues to do with the macro-economic environment were resolved, including forex shortages, firms saddled with NPLs may be able to repay.

"The macro-economic environment also has some impact on some of the companies that have NPLs under our portfolio in terms of being able to turn around and start performing," he noted.

Zimbabwe avoided a major bank lending catastrophe after over $1 billion worth of the toxic non-p0erforming loans were shipped to the Zimbabwe Asset Management Company, Dr Kanhai said. He said many banks had managed to rid their balance sheets of non-performing loans and now willing to lend to productive sectors, which he said was clearly evident and reflected on their books of accounts.

Dr Kanhai said in terms of the principal objective of cleaning up banks' balance sheet, the objective had largely been achieved and the next objective was now to resolve loans that were acquired.

"The sector has now been cleansed as you can see from a number of banks, but obviously there still are a few banks with NPL ratios above 5 percent; 5 percent is considered a healthy NPL ratio for the stability of the banking sector, but there are a few with NPLs above that benchmark.

"But, generally, most of the banks have cleaned up their balance sheets and you can even seen from the half year results published by banking institutions most of them have reduced the levels of non-performing loans, except a few who may have NPLs above the 5 percent," he said.

The RBZ had noted with concern that NPLs, which reached a peak of 18 percent in September 2014, causing banks to scale down on new loans, which had potential to weigh on economic recovery.

While Zamco had since officially closed the acquisition of ordinary NPLs, in terms of its original mandate, Dr Kanhai said the central bank's special purpose vehicle would continue acquiring bad loans of national interest or with a bearing on the stability of the banking sector.