ZAMCO to repay $1,1bn bank bailout

The Zimbabwe Asset Management Company (ZAMCO), says plans are afoot to repay by the end of this year, the $1,1 billion received from Treasury for the acquisition of non-performing loans (NPLs) from local banks.

ZAMCO chief executive officer (CEO), Dr Cosmas Kanhai, said in an interview this week that the majority of firms whose NPLs were acquired from banks, had been able to service their loans after they were given some extended periods to find their footing.

Kanhai said no taxpayer’s money would be used or required to settle obligations arising from funds that the Reserve Bank of Zimbabwe (RBZ)’s special purpose vehicle (SPV) got from Treasury.

He said ZAMCO would use proceeds from repayments made by companies that had borrowed from banks, but had not been able to pay back in time, as well as returns from investments made by the SPV.

The RBZ formed ZAMCO in 2014 after NPLs shot up to over 20 percent of total bank loans, making banks more cautious when lending to productive sectors, raising fears of reduced financial intermediation.

Further, systemic risk arising from high rates of bad loans on the books of banks would have negatively impacted the economy and the viability of some banks; hazards Kanhai said ZAMCO has prevented.

ZAMCO says NPLs are a drag on the performance of banking institutions through reduced earnings and loss of capital.

In a demonstration of the success of the interventions by ZAMCO, Kanhai said, the NPLs ratio in Zimbabwe had plummeted from over 20 percent to under 5 percent, which tallies with the global average.

Kanhai said ZAMCO had made so much progress in resolving the bad loans, with half the $1,1 billion having been repaid, raising hope ZAMCO may not need to exist for the full duration of its ten-year term, which is due to expire in 2025.

To acquire the loans ZAMCO’s payment was in the form of long dated Treasury bonds that were issued to banks.

The banks can use the bonds as collateral in raising liquidity or can trade the bonds on the market for cash.

It is the Treasury funds or bonds, which ZAMCO got from the Government, which the asset management company now intends to payback, to avoid placing the burden on the shoulders of the already struggling taxpayers through debt assumption instruments.

“What we are now planning to do, may be before the end of this year, we want to pay off the $1,1 billion from Government so that we can ensure and assure the public that no State funds are going to be used to bailout borrowers,” Kanhai said.

He said the company’s primary mandate is to efficiently resolve non-performing loans in the banking sector by acquiring, restructuring and managing the NPLs.

The NPLs acquisition will clean up and strengthen banks’ balance sheets and provide them with additional liquidity, which will enhance their financial intermediation role, namely the pooling savings and channelling of resources to productive economic activities.

Kanhai said the restructuring of non-performing loans had provided relief to borrowers whose fundamentals remain strong, but required reasonable funding cost structure and appropriate loan repayment periods that could be accommodated in their cash flows.

After the purchase of loans from the banking sector, ZAMCO conducts comprehensive credit analyses on the obligors to identify viable and non-viable business operations.

Viable companies will undergo financial restructuring such as extending loan repayment periods, reduction of interest rates or corporate restructuring meant to re-orient a company’s business with a view to resuscitate its operations.

ZAMCO can sell the viable NPLs to interested investors.

For non-viable businesses that cannot be rehabilitated, ZAMCO’s resolution options include selling related collateral and liquidating the companies.

Kanhai said since the NPLs accounted for just over 20 percent of total banking sector loans, before ZAMCO came in, the special purpose vehicle managed to reduce the ratio of NPLs by over 15 percent.

Many companies whose NPLs were taken over from banks, among them RioZim Limited, starafricacorporation and the Cotton Company of Zimbabwe (Cottco) are now performing exceptionally well.

“Those that have restructured (after NPLs takeover), most of them have paid off their debt, which means to us are now performing very well because if you pay off your debt, this means you have turned around,” he said.-ebusinessweekly.co.zw