Czech firm wins RBZ tender

Mangudya DRDEP

Central bank governor, John Mangudya

A CREDIT checker from the Czech Republic, Creditinfo, has been engaged by the Reserve Bank of Zimbabwe (RBZ) to set up the country’s Credit Reference Bureau (CRB) at a cost of US$1,8 million.
The move is expected to improve credit risk management in the financial sector.
Central bank governor, John Mangudya, told the Financial Gazette’s Companies & Markets (C&M) that the central bank had awarded the contract for the CBR system “to a renowned company called Creditinfo of Czech Republic”.
He confirmed the cost of the tender was US$1,8 million.
Creditinfo is a leading service provider for credit information and risk management solutions worldwide.
The company has established credit bureaus in more than 20 countries.
The CRB system is expected to consist of a credit registry and private reference bureau.
The bureau would enhance the verification process of borrowers, enabling bankers to assess credit risk and reduce the level of non-performing loans (NPLs) in the banking sector.
The system would also allow lenders to determine how much and at what rates to lend. It would promote 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 individual, corporate and other legal entities’ credit data from a variety of sources. This is consolidated into profiles available on request to subscribers.
This helps enhance financial stability by promoting more robust risk management practices, reducing credit risk. Credit would therefore be given to vetted individuals. Once risk is reduced, banks can lend at lower interest rates, fuelling growth-related economic activities.
The absence of a comprehensive credit reference environment in Zimbabwe had negatively impacted on the financial services sector, resulting in many of them battling with high NPLs.
NPLs had reached a peak of 20,45 percent of bank loans and advances in September 2014 but declined to 10,87 percent at the end of last year after the RBZ established the Zimbabwe Asset Management Corporation (ZAMCO).
ZAMCO has acquired NPLs from many banking institutions, allowing them to strengthen their balance sheets and in the process being able to leverage on these balance sheets to access fresh capital to fund productive sectors and spur economic growth.
C&M also understands that the central bank has already established a credit registry department as a unit within the apex bank’s supervision division.
This unit is expected to co-ordinate the process to ensure that the credit reference system is successfully rolled out.
The amendment to the Banking Act, which has since been approved by Cabinet, would provide enabling legislation to cover operations of the credit registry and appropriate regulations for the licensing and operation of private credit reference bureaus.
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.
The country has experienced over 20 cases of bank failures since 2004 due to serious challenges that ranged from poor corporate governance practices, deep rooted risk management deficiencies and chronic liquidity problems.
There has been growing concern over the number of banks that have failed considering the key role that the financial sector plays in the development of the economy.
The banking sector currently constitutes of 13 operating commercial banks, one merchant bank, four building societies and one savings bank.
In 1980, there were only five banking institutions in the sector but due to financial reforms in the 1990s, more players entered the sector which was previously dominated by large foreign-owned banks.
Interestingly, there were 40 players in the banking sector in 2002.
The failed banks appeared to have engaged in over-trading, some failing to manage risks with the boards and management failing to put in place strong risk management systems.
Further pressure came from increased competition resulting in narrowing of margins and reduced profitability against a background of increased credit defaults.
Apart from the banking public enduring tremendous psychological and financial trauma as a result of bank failures, the failure of a single financial institution has the potential to cause widespread disruption to the country’s payments system.

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