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Bank lawsuits clog the courts

ZIMBABWE’S courts are flooded with commercial lawsuits, particularly defaults on loans and credit arrangements as the country suffers the impact of tight liquidity.

Report by Taurai Mangudhla

Well placed officials at the High Court of Zimbabwe, who spoke to businessdigest on condition of anonymity, said banks have been filing an increasing number of lawsuits against their clients to recover unpaid loans.

“In fact, the largest number of commercial lawsuits coming to the courts now are from banks chasing their money from defaulting clients, followed by tenants and landlords fighting over unpaid rentals,” a source said.

Last week, Interfin Financial Services Limited (Interfin) and its wholly owned banking subsidiary Interfin Bank Limited (IBL) said loan repayments by borrowers have remained very slow due to the large number of loan recovery cases in the courts and the tight liquidity conditions prevailing in the economy.

Interfin said to date, 213 summons valued at US$80 million had been issued against its defaulting clients as the bank tries to enforce and quickly recover what it is owed.

However, Interfin is not the only bank reported to have sought the assistance of the courts to enforce provisions of its loan agreements.

Businessdigest has reported extensively on AfrAsia Kingdom Bank, which is battling to recover more than US$20 million in loans made to Valley Technologies. Like other banks, Kingdom Bank has resorted to the courts for relief, resulting in the bank executing on security held over the loan.

A top banker, who cannot be named for professional reasons, confirmed the latest developments.

“Yes, it is the reality of the situation on the ground. Banks have a fiduciary responsibility to recover money owed and will take all steps necessary to do so, and the courts are the banks last logical resort,” the banker said.

“Unfortunately litigation by its nature is taking long, because of the huge backlog of cases that are at the courts.”

Sources at the High Court said the whole system is bursting at the seams with banks enforcing collection.

Recently, there has been an upsurge in judgements against defaulting clients and sales in execution by the master of the High Court, particularly of fixed property, which would have been pledged as security are increasing. Attachments of moveable assets such as computers, machinery and motor vehicles have also been on the rise.

Although Finance minister Tendai Biti recently said the banking sector was sound, analysts fear that the rising number of loan foreclosures are a sign that things are not rosy.

Economic analyst John Robertson said the economy was generally suffering from a liquidity crunch which has resulted from a hostile business environment.

“We have policies like indigenisation that have made it difficult for people to bring money into the country,” he said.
Robertson said banks were in trouble after lending to clients who are struggling to pay
because of a general economic meltdown.

He said: “Everyone is not paying their loans on time and even banks are not clearing transactions on time and we have a log jam of transactions. We have had these delays in the past, but it appears we are building to a bigger problem.”

Robertson said despite the challenges, banks still have a responsibility to stimulate economic activity through lending hence the need to come up with cautious lending procedures in the absence of a fully-fledged credit bureau.

Earlier this year, the High Court ordered the sale of some of former Zimbabwe Stock Exchange (ZSE)-listed drug producer, Caps, to pay an unspecified amount of money owed to CBZ Bank.

The attached properties include the company’s factory in Harare’s Southerton industrial area.

ZSE-listed mining group RioZim Ltd is yet to clear about US$45 million owed to five financial institutions while a consortium of banks had to take over management of Lobels Bread to recover their funds after the bread maker succumbed to a myriad of challenges.

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