RBZ intensifies banks cleanup

Reserve Bank of Zimbabwe

Move meant to consolidate gains made after the central bank created the Zimbabwe Asset Management Corporation

THE Reserve Bank of Zimbabwe (RBZ) is to establish special asset management companies (SAMCs) to acquire and manage non-performing loans (NPLs) in the banking sector, the Financial Gazette’s Companies & Markets can report.
The move is meant to consolidate gains made after the central bank created the Zimbabwe Asset Management Corporation (ZAMCO) last year to ensure that the financial sector was free from distressed banks, in the process promoting the general stability and confidence in the banking sector
Credit risk, as reflected by the high level of non-performing loans, and liquidity constraints had been the most significant risks confronting the banking sector.
The SAMCs, which would undertake specific jobs with several forms of immunity, would, upon completion of their mandates, be dissolved, according to the Banking Amendment Act 2015.
The SAMCs will complement ZAMCO, which has bought a significant chunk of poorly-performing loans in the banking sector.
The purchase of NPLs by ZAMCO brought down NPLs in the sector from about 20 percent in 2014, to 11 percent by December last year after the company took over US$360 million in NPLs.
As a result of the RBZ’s intervention, most banks turned to profitability last year, with the combined after tax profit increasing by 63 percent to US$128 349 060 in 2015, from US$78 892 207 in 2014.
Five previous loss-makers returned to the black despite a deteriorating economic climate.
The Banking Amendment Act, which was gazetted last month, said ZAMCO would be complemented by these special firms, which would be established to undertake specific assignments on behalf of the central bank.
“In the exercise of its functions the Bank (RBZ) may establish any one or more companies or other entities, to be known as ‘special asset management companies’, (for) acquiring, rescheduling, disposing of, holding, managing or otherwise settling non-performing loans of banking institutions; or on the direction of the Bank, managing, acquiring, restructuring and disposing of distressed or problem or failed banking institutions,” the Act indicated.
It said while undertaking their functions on behalf of the central bank, SAMCs would be granted the immunity of the RBZ, and would have powers to investigate and act as curators.
The Act said ZAMCO would be given the same status to be granted SAMCs, meaning that it will now also have the same immunity as its parent.
“The wholly owned company of the Reserve Bank of Zimbabwe called the Zimbabwe Asset Management Corporation (Private) Limited…shall be deemed to be a special asset management company,” said the Act.
A securities firm recently said ZAMCO had saved banks from “the real threat of rising sector wide NPLs”, after toxic debts in three of the five listed banks dropped to single digit levels during the year to December 31, 2015.
Barclays Bank, CBZ and FBC reported NPLs below the 10,9 percent national average, while NMB and ZB registered 13 and 20 percent NPLs respectively, according to EFE Securities, which analysed the performance of listed banks for 2015.
NPLs were reported at 20,1 percent in 2014.
“While celebrating the much improved financials, the impetus from the acquisition of non-performing loans by the Reserve Bank backed ZAMCO could be viewed as a key driver to the recovery of most of these institutions,” EFE said in its report.
“The operating environment remained ensnared with the ever present default risk as the generally dominating individuals’ category for loans faced (challenges). The NPL ratios for most of the banks trended southwards largely buoyed by ZAMCO which took over these non-performing positions,” said EFE.
As part of measures to bolster stability in the banking sector, the central bank is in the process of setting up a credit reference system. It has appointed a Czech firm, Creditinfo, to set up the country’s Credit Reference Bureau (CRB) at a cost of 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.
The central bank has already established a credit registry department as a unit within its supervision division.
This unit is expected to co-ordinate the process to ensure that the credit reference system is successfully rolled out.
The Banking Amendment Act will provide enabling legislation to cover operations of the credit registry and appropriate regulations for the licensing and operation of private credit reference bureaus.

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