GETBUCKS Microfinance Bank has ditched mortgage lending barely three years after introducing it, due to runaway inflation ravaging the economy and decimating incomes and pensions, businessdigest can report.
The financial institution, which adopted a cautious approach to the issuance of mortgage loans, choosing to leverage on equity loans instead, said its business model cannot sustain the instrument in the face of a hyperinflationary environment.
GetBucks introduced mortgages to low-income earners in 2016, with the loan attracting 18% interest per annum, payable in 10 years with 0% deposit and has seen the bank increasing its interest income.
GetBucks now says it does not have access to long-term deposits, which makes mortgage loans a viable option in the current volatile economy characterised by runaway inflation, now close to 500%.
A mortgage loan is used either by prospective property owners to raise funds to buy real estate, or alternatively by existing property owners to raise funds for any purpose, while putting a lien on the property being mortgaged. The loans are of a long-term nature.
GetBucks CE Terry Mudangwe told businessdigest on the sidelines of the company’s annual general meeting on Tuesday this week that the bank, which had hoped to double its mortgage loan book to ZW$3 million in 2017 on the back of new political developments, had finally thrown in the towel, as there was continuous value erosion.
“We are now focussing on short-term loans. Mortgage loans are of long-term nature and not viable in this environment. It’s just destroying value. We are no longer focussing on that anymore and since the last time we spoke about it, nothing has moved. We are now focussing on our core business — civil servants. With inflation, even if you take a loan as an individual at a certain amount, and you divide it with the current rate, you will see that you will have done nothing, but destroy value,” he said.
Mudangwe said the mortgage industry outlook was also gloomy as long as inflation remains high. The matter is compounded by the fact that GetBucks does not have access to long-term deposits, making mortgaging impossible.
“Maybe to the guys who have long-term funds, your Old Mutual, your Cabs, they can do that with pensions funds. We don’t have access to that, as most of our deposits are all wholesale. We don’t have deposits of a long-term nature and, without that, the mismatch of assets and liability becomes a big issue,” he said.
In the financial year ending December 31, 2019, GetBucks carried on its books a total of ZW$37,11 million of past due and impaired mortgage loans, up from ZW$21,6 million in FY 2018.
A total of ZW$1,193 million in mortgage loans, with maturity ranging from three months to over five years sat on the micro-finance institution’s books at full-year 2019.
This was up from the 2018 figure of ZW$1 million.The maturity analysis of loans and advances were based on the remaining period to contractual maturity from year end.
Mortage loans characteristics such as size of the loan, maturity, interest rate, method of paying off, among others, can vary considerably and the lender’s rights over the secured property take priority over the borrower’s and other creditors.
This means that if the borrower becomes insolvent, creditors will only be repaid the debts owed to them from a sale of the secured property if the mortgage lender is repaid in full first.
Overall, appetite for lending by Zimbabwean banks has been on a downward trajectory, reversing gains for private companies, as cancellations of mortgages increased.
On general lending, the loan-to-deposit ratio went down from a high of 86,07% in 2015, before tumbling to 56,64% in 2016. In December 2017, it took a tailspin to 44,81%, before plunging to 40,71% in December 2018 and 36,6% in 2019.
Meanwhile, in the year to date, Mudangwe says the value preservation strategy to acquire investment property in 2018 continued to yield results, with a fully functional banking platform, as the bank continued to focus on growing its customer base.
“Capital preservation importance has been magnified by the recent indexing of minimum capital to the United States dollar. We now have to strike a fine balancing act between value preservation and profitability,” he said.