THE Zimbabwe Asset Management Company (Zamco), a special purpose vehicle created to take over non-performing loans (NPLs) from banks as a means of cleaning up their balance sheets, is aiming to have absorbed US$750 million of the loans by December 31 2016. Zimbabwe Independent reporter Hazel Ndebele (HN) this week caught up with Zamco chief executive Cosmas Kanhai (CK) who revealed that the economic crisis which the country finds itself in is leading to the creation of new NPLs by distressed companies. He also delves into several other issues.
HN: How has Zamco been performing since its inception in 2014? Has it achieved its set objective?
CK: The principal mandate of Zamco is to clean up the balance sheets of banks to enhance their financial intermediation role as well as enhance stability of the financial sector.
When Zamco was formed, the NPLs ratio had peaked to 22,14% in September 2014. The NPL acquisitions that have been made to date by Zamco have contributed to the decline in NPLs ratio to the current level of 10,05% as at 30 June 2016. Thus in terms of achieving its principal mandate Zamco is well on course.
The second principal mandate of resolving the acquired NPLs is a long-term process, which is supposed to be completed during the sunset period of 10 years which Zamco will be in existence. The resolution stage commences in earnest after the completion of the acquisition stage.
HN: What challenges is Zamco facing?
CK: The adverse macro-economic environment poses a major challenge in that a number of companies are becoming distressed, leading to creation of new NPLs in the banking sector.
In addition, turnaround efforts of some of the restructured companies are being affected by the environment. Further, depressed property prices prevailing in the property market will have an effect on the value of security held by Zamco.
HN: What is the procedure when companies or individuals want their loans to be absorbed by Zamco?
CK: Since the acquisition is on a willing-buyer willing-seller basis, the first acquisition procedure involves a banking institution offering to Zamco on an NPL or a portfolio of NPLs that they wish to dispose. Once offered, Zamco will conduct due diligence to assess whether the loan meets its acquisition eligibility requirements which include the following: the loan should be classified as an NPL by the bank, the loan should be secured by mortgage bonds, loans should not be granted to insiders, the underlying borrower should have prospects of viability if the loan is restructured to enable repayment of the loan from business cashflows and/or the underlying collateral should be eligible for debt-asset swap.
HN: How much has been assumed to date?
CK: As at September 30 2016, Zamco had acquired NPLs totalling US$539,91 million.
HN: Give us a breakdown, in figures, of NPLs from each bank which Zamco received.
CK: We advise that Zamco, just like other financial institutions, is governed by the principle of confidentiality in matters to do with customers. Zamco’s customers are the banking institutions from whom we acquire loans.
HN: We understand politicians are abusing the Zamco facility to clear their debts/loans. What is your comment?
CK: Individuals cannot approach Zamco directly for their NPLs to be acquired by the institution, thus there is no scope for politicians to come directly to Zamco to have their loans acquired. Politicians can only have their NPLs acquired if they are offered by their respective banks and they meet Zamco’s criteria.
Zamco was formed to resolve the problem of NPLs in the banking sector, it is therefore misplaced for some borrowers in Zimbabwe to believe that Zamco is a warehousing agency where their NPLs can be taken over from banks, warehoused and remain there unserviced. We advise that this is a wrong misconception, if there is no demonstrated capacity to repay the loans Zamco would sell the underlying collateral. Thus acquired, NPLs whose underlying borrowers demonstrate commitment and capacity to repay will have their loans restructured.
For those that have no commitment or capacity to repay, Zamco will foreclose on the collateral or do a debt-asset swap to recover the debts, therefore it does not mean that every acquired loan will be given breathing space. Some loans which are deemed non-viable may be acquired and quickly resolved by selling the collateral.
HN: Does this also mean that Zamco only acquires NPLs from companies and not individuals?
CK: Indeed, Zamco does not acquire NPLs for individuals, it only acquires loans from companies and the loan should be nothing below US$50 000. Moreover, those borrowers cannot approach Zamco directly as they do not own the asset. Borrowers who approach Zamco directly are referred back to their bankers. The borrower may wish his loan to come to Zamco but if the bank refuses to sell then there is nothing that Zamco can do.
HN: Some banks are still stuck with bad books from their own disclosures in their financials and with some over US$100 million impaired between themselves or soon to be impaired. It becomes clear that Zamco will have to intervene against such impairments. How are banks that do not lend prudently dealt with?
CK: The acquisition of NPLs is on a willing-buyer willing-seller basis. Zamco, therefore, cannot force banks to sell NPLs to it. Thus intervention can be to the extent of the NPLs offered to it.
However, the Reserve Bank has set target NPL ratios for the banking sector of 5% by December 2016. It is therefore up to the respective banks to either resolve the NPLs internally or sell to Zamco if they are to meet the target. It must be noted that once Zamco completes the acquisition stage, banks would be expected to resolve any new NPLs internally.