Banks now cleaner and safer, says Zamco

THE Zimbabwe Asset Management Company (Zamco), says it has managed to eliminate potentially hazardous systemic risk from the banking sector after taking over $1,1 billion worth of non-performing loans (NPLs), giving debt ridden firms a new slate to make a fresh start.

Zamco chief executive, Dr Cosmas Kanhai, said after assuming bad debts, the NPLs rate among banks dropped from a peak of 20 percent to five percent, which is in line with the global trends.

While Zamco’s primary function was to clean up the banks’ balance sheets to stem out the hazards associated with the bad loans, he said the lifting and restructuring of the NPLs gave firms that were struggling to repay latitude and time to get back on their feet.

“In terms of our core mandate, we have done very well because our mandate was to prevent banks from closing. So, when we took over the NPLs, we cleaned up the balance sheets of banks,” he said in an interview.

“It means that banks no longer had non-performing assets, we also gave the banks Treasury Bills (TBs), as you are aware TBs are risk free asset, which means the capital adequacy ratio of banks improved.

“And from a liquidity side, they also had TBs, which they could use as security to access liquidity, so it helped the banks quite a lot. So, in terms of the core mandate, Zamco achieved this very well.”

More than 65 percent of companies that had their bad loans assumed by Zamco from banks, had managed to pay up and were now in sound positions.

Among the beneficiaries are entities such as RioZim Limited, starafricacorporation and the Cotton Company of Zimbabwe (Cottco) who are now performing 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,” said Dr Kanhai.

As such, Zamco is running ahead of schedule and could complete resolution of the NPLs much earlier than its gazetted 10-year lifespan. Dr Kanhai said that the asset management firm will not exist in perpetuity and so will fold down after fulfilling its mission. The entity is now working on the secondary phase of their mandate, which is to resolve and recover the NPLs from firms that owed banks.

Further, Dr Kanhai said Zamco was confident that it can pay off the $1,1 billion extended to it by Treasury (through TBs) to pay banks for the NPLs it assumed and the resources will come from repayments by firms that borrowed, proceeds of foreclosed NPLs with no prospect of turnaround and income from investments.

“If you have a systemic problem of NPLs, you can use the asset management firms to address that, that is what we did as Zimbabwe and we addressed NPLs ratio. It is not a Zimbabwean issue (taking over NPLs from banks), this is international best practice,” he said.

“If you check now, since last year our NPLs ratio for the whole banking sector, it is trending below five percent, which is within the international best indicator because best practice says a bank should have (NPLs) five percent and below to be regarded safe and sound.”

Dr 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. Zamco was established by the Reserve Bank of Zimbabwe (RBZ) in July 2014, as part of holistic measures to deal with the hazardous and systemic potential risk of rising (NPLs) in the banking sector.-chronicle