The level of non-performing loans (NPLs) in the banking sector has reached ‘frightening’ levels after it emerged that some banks had a bad loan ratio of up to 91 percent, a senior central bank official said yesterday.
RBZ head of supervision, Norman Mataruka, told delegates attending a World Bank meeting that the absence of a credit reference bureau and liquidity constraints had seen NPLs spiking to an industry average of 18 percent as at June from nearly three percent at the introduction of the multiple currency regime five years ago.
“We are having a challenge in terms of the high level of non-performing loans in the market. In 2009 we were around three percent in terms of the average non-performing loans,” Mataruka said.
“As at end of June we are currently seating at 18.5 percent. We actually have a few banks, about five, whose average non-performing loans are 76 percent with some banks at 91 percent. This is actually a frightening trend and we have seen that this particularly challenge needs to be resolved.”
He said the central bank has engaged the financial service sector with a view to setting up a credit reference bureau in a bid to lower the level of NPLs.
Amendments to the Banking Act would also provide a solid legal framework for the fragile banking sector, he added.
The central bank has also formed a new special purpose vehicle, the Zimbabwe Asset Management Company to house the $700 million NPLs in the system. Zamco will work with registered asset management firms to mobilise resources offshore to acquire NPLs to plug holes in banks’ balance sheets.
“We have looked at the market in terms of characteristics of what is happening. There are serial defaulters who you find common in most institutions who just don’t pay,” said Mataruka.
“We have looked at banks that actually failed before and you also find that one area that needs to be strengthened among banks is the credit underwriting standards.
“Some information that is critical is not captured and when it comes to foreclosure you find out that certain key documents which were supposed to be signed by the client were never signed and it becomes difficult to foreclose and people walk free.”
He called for the setting up of specialised commercial courts to speed up the process of winding up defunct financial institutions to ensure that depositors are not prejudiced.
“There are no specialised commercial courts and as a result the process takes a very long time,” Mataruka said.
“We have banks that were closed two years ago and which were then supposed to go through provisional liquidation and to date the final order is still to be granted yet there are depositors out there whose money is still locked in those institutions. I think there is need for the commercial courts and the judges to be sensitive to these issues.”- The Source