Banks tighten lending regime


Reserve Bank of Zimbabwe

LOCAL banks have tightened their lending in a move expected to stem losses in the stricken financial sector, the Financial Gazette’s Companies & Markets (C&M) has established.
The new regime comes against the backdrop of a spike in non-performing loans (NPLs) since dollarisation, which reached close to US$1 billion in 2014 or 20,14 percent of total loans in the banking sector. This became the biggest threat to banking sector stability.
The growing NPL portfolio within the banking sector had been a result of poor credit analysis. Some laws were extended to cronies and insiders without collateral.
However, the NPLs dropped to 10,9 percent of total deposits last year, according to latest official statistics. This was after the Reserve Bank of Zimbabwe (RBZ) established the Zimbabwe Asset Management Corporation (ZAMCO) to deal with NPLs.
The acquisition of NPLs by ZAMCO is expected to strengthen banks’ balance sheets, enabling them to access fresh capital to fund productive sectors and help spur economic growth.
Several banking institutions collapsed due to poorly performing loans, although the bulk of the institutions were accused of shareholder and management delinquency, with insider loans playing a key role in their insolvencies.
Industry insiders said banks had experienced higher than expected credit losses.
As a result, they have been tightening their lending terms on all classes of loans.
This means, it is now harder to obtain a loan from local financial institutions than it was before.
Speaking to analysts at a briefing in the capital last week, John Mushayavanhu, the chief executive officer of FBC Holdings, confirmed his institution had tightened lending requirements to manage its loan quality.
He said although their banking unit, FBC Bank, had become too restrictive in its lending, it would continue to provide credit to credit-worthy customers.
“The bank has put stringent credit policies in place to ensure that new credit is advanced only to qualifying customers,” said Mushayavanhu.
He added: “Asset quality has significantly improved with NPLs down to eight percent in compliance with RBZ guidelines of 10 percent set for June 30, 2016.”
Another executive in the sector, Ron Mutandagayi, the ZB Financial Holdings chief executive officer, also confirmed their banking unit was taking a cautious approach.
“As a result of high NPLs, our credit creation receded, in response to amplified defaults risk,” said Mutandagayi.
Daniel Sackey, Ecobank Zimbabwe’s managing director, said the pan-African bank was more selective and cautious in its lending in line with the parent’s strategy.
“In line with the Ecobank Group strategy (one of the ) banks’ strategic focus for the next five years is to improve asset quality through strengthening the credit process and risk culture to protect shareholders, investments and depositors’ funds,” said Sackey.
The more cautious approach to lending by banks will reduce availability of loans to people with unsatisfactory credit records.
Although many locally-owned banks had a relaxed lending regime soon after dollarization in 2009, foreign-owned banks maintained a more cautious approach, which helped them survive the turbulence of a liquidity crunch and increased loan defaults.
Apparently, Barclays Bank Zimbabwe was one of the few banks that stuck to a cautious approach. But this month, the bank’s managing director, George Guvamatanga, said they had adopted a new lending strategy targeting government and State-owned institutions.
Already, about seven percent of Barclays’ loan book accounted for lending to government during the year to December 31, 2015, said Guvamatanga.
“We started lending to the public sector (in 2015),” Guvamatanga told analysts during a presentation of the bank’s financial results.
“Seven percent of our loans are now in the public sector. We have demonstrated over a long period of time our ability to manage risk.
“We will continue with that focus. We will also be looking at efficient deployment of capital. We had too much money sitting in low earning assets,” he said.
Guvamatanga said the new lending strategy to the public sector demonstrated Barclays’ commitment to the Zimbabwean market.
He said the bank still remained cautious in its lending to avoid poorly performing loans.
To help local banks, the RBZ is in the process of establishing a Credit Reference Bureau, which will assist in determining the credit worthiness of individuals and institutions.
The central bank has also amended the Banking Act, which has since been approved by Cabinet.
This would provide enabling legislation to cover operations of a credit registry and appropriate regulations for the licensing and operation of private credit reference bureaus.
The bureaus would enhance the verification process of borrowers, enabling bankers to assess credit risk and reduce the level of NPLs in the banking sector.
The system would also allow lenders to determine how much and at what rates to lend. It would induce transparency in the economy as there would be greater sharing of information, making financial institutions aware of their customers’ financial exposures.
Credit bureaus are set up to collect individuals, corporate and other legal entities’ credit data from a variety of sources. The data is consolidated into profiles and made available on request to subscribers.
This helps enhance financial stability by promoting more robust risk management practices, reducing credit risk, increasing the supply of credit to fuel growth-related activities and helping to lower interest rates. — Additional reporting by Shame Makoshori

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