THE level of non- performing loans which reached a high of 91% in June is a combination of a depressed economy as well as lack of effective governance structures which could have a devastating effect on the banking sector, analysts have said.
Reserve Bank of Zimbabwe (RBZ) head of supervision Norman Mataruka recently told delegates attending a World Bank meeting in the capital last week that the absence of a credit reference bureau and liquidity constraints had resulted in non-performing loans (NPLs) increase to an average of 18% as at June this year.
This is six times more than when the multiple currency regime began in 2009.
“We are having a challenge in terms of the high level of non-performing loans in the market. In 2009, we were around 3% in terms of the average non-performing loans,” Mataruka said. “As at end of June we were sitting at 18,5%. We actually have a few banks, about five, whose average non-performing loans are 76% with some banks at 91%. This is actually a frightening trend and we have seen that this particular challenge needs to be resolved.”
He added that the central bank has approached the financial service sector about setting up a credit reference bureau in a bid to lower the level of NPLs.
According to sources, Capital Bank which closed down operations recently, had NPLs pegged at 93%.
Tetrad Investment Bank has NPLs standing at 83% while Allied Bank stands at 54% in NPLs.
“Most of the affected banks are indigenous banks affected by a combination of governance failures and a depressed economy which is a lethal combination,” the insider said.
Mismanagement and corporate, governance deficit, analysts say are manifested through reckless insider loans and weak credit and risk assessments. Optimal NPLs stand at 5% but the current average of 18,5% is more than three times prudential levels.
The central bank has formed a new special purpose vehicle, the Zimbabwe Asset Management Company (Zamco), to deal with the US$700 million NPLs in the system. Zamco will work with registered asset management firms to mobilise resources offshore to acquire NPLs to plug holes on banks’ balance sheets.
The SPV had acquired NPLs worth US$45 million from three banks by mid-August.
Economist John Robertson however doubts that the central bank can find the funds to mop up the NPLs across the banking sector.
“Not much has happened since the announcement(of the vehicle) I do not think the government has money to pay US$700 million for the NPLs,” Robertson told businessdigest this week.
He said the high levels of NPLs are as a consequence of the banks penchant to provide unsecured loans, adding this was the case particularly for the smaller, newer banks.
Robertson believes the governance deficit leading to high NPLs is a result of too many banks operating in the economy.
“The problem is that the government gave away far too many banking licences to people who claimed they could look after people’s money when they were in fact looking after themselves.” he said.
Robertson pointed out that the high level of NPLs could signal the closure of banks.
University of Zimbabwe economic leturer Ithiel Mavesere said the high level of NPLs could have adverse effects on the country’s economy.
“Failure to manage loans, which make up the largest portion of bank assets leads to the occurrence of non-performing loans,” he said.
Mavesere said most of the bank failures were a result of non-performing loans and may lead to bank system or financial sector systemic failure and economic stagnation which eventually leads to an economic recession.
“ If the NPLs are continuously rolled over, then financial resources may be locked up in unprofitable sectors of the economy and this hinders economic growth and leads to economic inefficiency, particularly the banking sector,” Mavesere said.
Banking sector problems have been worsened by the fact that over 83% of total deposits are transitory. Transitory deposits are funds held in bank accounts from which deposited funds can be withdrawn at any time without any advance notice to the banking institution.
These can be “demanded” by an account holder at any time.
Analysts say Mataruka’s disclosures that some banks had NPLs of above 80% when the official industry average was below 20% shows that some banks are exercising prudential lending and have kept non-perfoming loans in their institutions in check.
Many had long believed that banks were not providing adequately for bad loans.