Bad debts transfer spur bank earnings

THE transfer of Non-Performing Loans (NPLs) to a special purpose vehicle created by the Reserve Bank of Zimbabwe (RBZ) to absorb the bad debts, coupled with an aggressive cost-cutting drive, has seen 15 banks recording positive earnings in the full year to December 2015 (FY15), up from 11 the previous year, businessdigest has learnt.

Bernard Mpofu/ Taurai Mangudhla

In 2014, the central bank set up the Zimbabwe Asset Management Company (Zamco) to clean balance sheets of banks and other companies in key economic sectors.

This came as NPLs hit a peak of 20% in 2014 from as low as 5% at the introduction of the multicurrency regime in 2009.

The post-multi-currency period has seen eight banks — Genesis, Capital, Interfin, AfrAsia, Tetrad, Royal, Trust and Allied — going under largely due to corporate governance failures and high NPLs, prejudicing depositors their hard-earned cash and destroying public confidence in banks, key financial intermediaries.

Banks that moved to positive territory in FY15 from loss-making positions in FY14 include FBC, BancABC, MetBank, and ZB Building Society and Bank.

During this period, CABS at 22% of total sector profitability, had the largest market share. CBZ and Stanbic also registered solid growth accounting for 20% and 19% of the sector’s earnings. Two of the traditional big banks, namely Barclays and Standard Chartered, gathered less than 4% combined contribution to total sector profitability.

Figures from the central bank show that Zamco acquired bad loans amounting to US$357 million in 2015, easing pressure on most financial institutions plagued by bad debts.

Of the US$357 million, US$96 million was private sector debt rescheduling.

A US$33 million RioZim debt was acquired by Zamco, throwing a life line on the troubled resources group. A total US$29,9 million Cottco debt was also assumed by Zamco.

Zamco also acquired Hwange’s US$14,9 million, Cairns’ US$7 million and Border Timbers US$6,7 million.

Analysts say this reprieve has seen the banking sector showing positive signs of sustained growth despite the obtaining operational challenges such as liquidity constraints, low disposable incomes and low industrial capacity utilisation, among others.

Banks such as MetBank and ZB, banking sources say, could have benefitted from Zamco.

Metbank reported in its 2015 annual results, the bank had received Treasury Bills with a face value of US$1,25 million from Zamco.

“These were in exchange for some non-performing loan exposure with a book value of US$1,7 million. The bank wrote off the resulting loss of US$0,5 million from this transaction through profit and loss,” said Metbank in a statement attached to its full year financial results to December.

“A synopsis of the financials show that profits were predominately posted across the board with aggregate banking sector profit after tax (PAT), at US$128 million rising from US$79 million recorded in 2014.”

“The rise in PAT was mainly attributed to an improvement in fortunes for banks such as Metbank, FBC, BancABC and ZB Bank, which all moved into profitability in the year under review. Other previously profitable banks such as POSB, Ecobank and NMB registered impressive growth in profits, advancing by 532%, 141% and 235% respectively.”