A SPECIAL purpose vehicle created by the Reserve Bank of Zimbabwe to absorb non-performing loans (NPLs) says the level of bad loans is now on an upward trend after it absorbed NPLs totalling US$539 million since inception two year ago, mirroring a floundering economic environment.
By Hazel Ndebele
In 2016 so far Zamco acquired close to US$200 million NPLs.
As at December 31 2015, the corporation had acquired loans worth US$353,58.
In 2014, the central bank established the Zimbabwe Asset Management Company (Zamco) to avert a catastrophic banking crisis triggered by soaring NPLs which reached double digit figures against a best practice target of 5%. At Zamco’s inception, bad loans had reached US$816 million.
Zamco chief executive Cosmas Kanhai told Zimbabwe Independent that a growing number of distressed companies were now turning to special purpose vehicle to clean their books and get a fresh lease on life.
An NPL is when payments of interest and principal are past their due date by 90 or more days.
Kanhai said Zamco is getting closer to achieving its aim to have absorbed US$750 million of the loans by December 31 2016 and the institution after reaching the target would then cease to further acquire loans.
“Turnaround efforts of some restructured companies are being affected by the adverse macroeconomic environment. The environment also poses a major challenge in that a number of companies are becoming distressed, leading to creation of new NPLs in the banking sector,” Kanhai said.
“To ensure that we are in line with international policies, we received technical assistance from the IMF twice — where they assisted us in terms of approaches and procedures so that they are in line with what everyone else is doing internationally.
“Our model is different in that we could not acquire all loans at once like what they do in other countries as you are also aware of the liquidity challenges that the country is facing, therefore we have to acquire in phases.”
Zamco buys out loans from banks using Treasury Bills (TBs) which are short-term negotiable instruments. These Bills are issued by the government through the central bank to finance government short-term requirements.
Kanhai also explained that in other countries such institutions are governed by specific acts of parliament but in Zimbabwe the powers of Zamco are through the amended Banking Act.
He added that Zamco is operating on a willing-buyer willing-seller basis whereas in other countries it is compulsory to sell all NPLs to clear balance sheets.
Kanhai said Zamco would not exist in perpetuity as it would cause moral hazard and therefore the special purpose vehicle would wind up and close after its sunset period of 10 years.
He also said Zamco enables customers to restructure their companies and pay back loans after not more than eight years.
However, those companies which cannot be restructured are then considered for different models such as a debt-equity swap where Zamco acquires ordinary shares and becomes a shareholder of the company.