Individual and institutional investors can pledge their shares as collateral to borrow funds from banks and other lenders through the Chengetedzai Depository, the securities depository firm has said.
Chengetedzai runs Zimbabwe’s sole central securities depository (CSD), which went live in September 2014.
“The purpose of using securities as collateral security is to motivate the banks to lend guaranteed or backed by securities as a way to deepen transactions or activities in the securities market”, Chengetedzai said.
Pledging refers to a process in which the borrower (pledgor) of funds uses securities as a form of collateral security to secure the funds it borrows or takes from the lender (pledgee).
Most banks are now preferring to hold treasury bills instead of extending loans to individuals and corporates owing to default risk, which has seen the emergence of mounting high non-performing loans.
Post-dollarisation bad bank loans peaked at over 20 percent in 2012, but have since come down to just under 8 percent following the creation of a central bank vehicle to purchase non-performing loans from the sector.
Chengetedzai said the pledged securities will not be used for other transactions since they will be locked until the pledgor settles the debt for which the securities were used as collateral.
Additionally, in order to mitigate credit risk, Chengetedzai said once securities are pledged, no new pledge can be registered on the same securities.
However, the pledgor will be entitled to all the dividends or interest payments due during the tenure of the pledge.
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