Non-Performing Loans (NPLs) are expected to marginally decline by 5% in 2016 with the acquisition of some of the bad debts by the Zimbabwe Asset Management Company (Zamco) playing an integral role in the resuscitation of distressed companies, the Zimbabwe National Chamber of Commerce (ZNCC) has said. Cottco, Cairns foods, RioZim and Border Timbers are some of the companies that have had their debts assumed by Zamco.
The decline in NPLs is a major boost within the financial sector as confidence needs to be revived so as to create stability, said ZNCC in its 2016 Economic Outlook report.
“The outlook in 2016 views the banking sector improving and building confidence within the economy that can lead to investment inflow within the market which is expected to reach the US$600 million mark, coupled with the commitment of the government to clear its debt to the international finance institutions,” ZNCC said.
“The confidence in the banking sector has also been boosted by the reduction in NPLs (and) the year 2016 hopes to see the banking sector improving in terms of building confidence in the financial sector with Zamco acquiring non-performing loans in the banking sector.”
However, fears intensified after it emerged Zamco is acquiring non-performing loans in the banking sector that are secured. International best practice allows non-performing loans to a maximum of 5% beyond that margin will not be desirable.
The ratio of NPLs to total loans declined from its peak of 20,45% in June 2014 to 14,27% as at end September 2015.
This comes after visiting International Monetary Fund mission head of delegation Domenico Fanizza last week called on government to create stability in the banking sector to help turn Zimbabwe’s economic fortunes after successful completion of the Staff-Monitored Programme.
Finance minister Patrick Chinamasa in his 2016 National Budget, highlighted the objectives of the reform measures in the financial sector which targeted among others restoration of financial sector stability, creating confidence in the financial system, strengthening supervision and surveillance, mobilising domestic savings, credit creation and financial inclusion. Despite attempts to improve financial inclusion by the central bank, ZNCC noted the public is unable to afford the high rates being charged by banks.
“While the deposit interest rates offered by banks appear attractive, the minimum amount required is too high hence resulting in the public not having cash to open highly rewarding fixed deposits considering the prevailing liquidity constraint in the market,” ZNCC said.
Average lending rates for individuals declined to 12,20% in November from 14,16% in January 2015 with nominal lending rates ranging between 4 and 18% in December compared with 6 and 35 % in January 2015 after the central bank governor John Mangudya provided guidelines on interests rates in his Monetary Policy Statement.