The newly formed
Cabinet approved the establishment of a national special purpose vehicle, ZAMCO, to acquire non-performing loans from banks to clean up and strengthen banks' balance sheets.
According to RBZ, banks are buckling under the pressure of
NPLs grew from 16 percent in 2013 to 18,5 percent by June this year, as the economic situation deteriorated, limiting the capacity of corporates and individuals to repay loans.
Dr Mangudya stressed the point that ZAMCO would only assume non-performing loans secured against recoverable assets. As a result, ZAMCO will become an asset rich company.
"ZAMCO will not take all the non-performing loans. It will only take the assets for which loans were secured against," he said.
A non-performing loan is a loan that is in default or close to being in default. Many loans become non-performing when in default for 90 days, but this can depend on the contract terms.
The expectation is that, taking way non-performing loans from the books of banks will make them less risk averse and allow the financial institutions to increase credit to private sector.
"We want to dispense with non-performing loans to allow the banks to reconsider extending credit to productive sectors, especially the agricultural sector," Dr Mangudya said.
Dr Mangudya said ZAMCO will be an asset rich company since the securitisation of loans from the banks was undertaken against the assets of the company to which advances were made.
"ZAMCO will be cash rich pool. No debt that is not secured by recoverable assets will be acquired by ZAMCO," Dr Mangudya said.
"ZAMCO will only acquire debt that is secured. The banks that lend out money without security will have to see what measures to take against that debt," the governor said.
The governor's remarks came against speculative suggestions that ZAMCO would take all banks' non-performing loans.
It was assumed the loans would be inherited by ZAMCO at a discount, implying that most of the beneficiary banks would take some hit on the value they had advanced to clients.
In his maiden monetary policy statement issued last week, Dr Mangudya said to address the vicious circle of low economic growth, company closures and banks vulnerability, resolution on non-performing loans was critical.
The central bank was cognisant of the fact that the problem of high levels of non-performing loans, which have exceeded the international benchmark of up to 5 percent, could be a real threat to financial stability and economic growth.
The banks cut on lending to business at a time the companies desperately require working capital and funds for retooling.
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