Bank NPLs fall to single-digit level

. . . worries over tight credit conditions

Livingstone Marufu —
AS banks continue to put a lid on loans and advances, non-performing loans (NPLs) which describe a loan on which the debtor is not making any repayments have dropped to below 10 percent from a peak of 20,5 percent in 2015, raising expectations that the sector is becoming more stable.

However, although NPLs have declined to single-digit figures, they remain above the 2016 year-end target of 5 percent set by the Reserve Bank of Zimbabwe (RBZ).

There are fears that while cutting back on lending might help maintain stability in the financial services sector, it will negatively impact on local economic activity.

Most companies are struggling to access finance for working capital requirements while the credit has been expensive where available.

RBZ senior divisional chief (economic research and policy enhancement) Mr Simon Nyarota recently told The Sunday Mail Business that the NPLs ratio is now currently just below 10 percent.

“We are happy to share with you that NPLs have gone down from over 20 percent in 2015 to the current levels of below 10 percent. We hope that they will keep going down.

“This will contribute to more robust credit risk management practices which will help promote the safety and soundness of the financial system,” said Mr Nyarota. It is believed that the creation of a credit registry system, which is currently underway, will reduce souring loans even further.

Creditinfo, a Czech Republic credit checker, was in April 2016 awarded the tender to set up the RBZ’s credit bureau system at a cost of US$1,8 million.

Currently, banks use the Financial Clearing Bureau (FCB), which only keeps a register of defaulters and judgements.

“The (credit reference) system is currently at testing stage. It’s expected to improve the performance of the financial sector and stimulate economic development by making lending and borrowing easier, faster and ultimately cheaper.

“Further, borrowers can use their positive credit history as ‘collateral’ to access loans at better rates and seek more competitive terms from different lending institutions.

“The new system promotes and supports a high level of trust between lenders and borrowers resulting in an increased volume of credit in the economy,” added Mr Nyarota.

Usually, the availability of timely and accurate information on borrowers’ debt profiles and repayment history enables banks to make informed lending decisions. Critics claim that there currently exists a lax credit culture on the local market.

However, the credit registry will contribute to more robust credit risk management practices which will help promote the safety and soundness of the financial system.

The central bank will establish a hybrid credit reference system, with provision for both private credit bureau and a credit registry which will be fully owned and operated by the Reserve Bank.

The selection of vendors that will roll out the registry programme is presently underway.

There are also efforts aimed at coordinating data providers in order to promote the development of standard data templates for the system.

Economist and senior lecturer at the University of Zimbabwe Dr Albert Makochekanwa said by reducing NPLs, the banking sector could prime itself for more investments.

“The decrease in ratio (NPLs) may be due to the tightening conditions in the banking sector.

‘‘This will mainly benefit the investors as they know that their money is secure as no investor will want to put his money in a bank with high NPLs.

“On the other hand, it’s (difficult lending conditions) a disadvantage to those who want to borrow money… If some customers don’t repay back their loans, banks are forced to take that measure,” said Dr Makochekanwa.

The Zimbabwe Asset Management Company (Zamco), an arm of the RBZ, has taken over more than US$188 million worth of toxic debt off banks’ balance sheets since it was established in 2014.

In the South African financial services sector, NPLs are forecasted at 4 percent for 2017, while the ratio for Zambia and Botswana stands at 6 percent and 4 percent, respectively.

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