The Sunday Mail
Most companies and individuals are under siege as most of their properties are being attached for debts owed to various banks – File picture
Darlington Musarurwa and Africa Moyo
PROMINENT individuals and top companies are now living in mortal fear of the Sheriff of the High Court and the Messenger of Court as more properties continue to be attached and put under the hammer for outstanding debts and mortgages owed to creditors, mainly banks.
>> Debtors plead for debt restructuring
>> RBZ rescues four companies
>> More properties under the hammer
There are real fears that such foreclosures will continue as companies and individuals that borrowed funds after the transition from the Zimbabwe-dollar era to the multicurrency system are caught up in a sticky debt trap.
Interest rates in Zimbabwe post-dollarisation oscillated between 18 percent and 25 percent. It is only last week that the Reserve Bank of Zimbabwe (RBZ) announced a new regime of interest rates – now capped at 18 percent – that have been agreed to by the Bankers Association of Zimbabwe(BAZ), a grouping of banks operating in Zimbabwe.
In what has turned out to be a boon for auctioneers and gloom for debtors, activity has gradually picked up.
Companies in debt, banks in hot pursuit
Last week, Realty World Estate Agents, Valuers (and) Auctioneers advertised a number of properties that were set to go under the hammer for loans owed to local banks. Among the properties is a vacant 1 969 square metre stand along Willowvale Road owned by businessman and farmer Mr Cecil Muderede and his wife who seem to have failed to service an undisclosed debt owed to MBCA Bank. The businessman is however not new to being pursued by creditors as he recently witnessed his investment in Jaggers Wholesalers go up in smoke. Mr Muderede bought Jaggers from Metcash in April 2010 through his investment vehicle Borlscade Investments but he could turnaround its fortunes. It collapsed from a US$13 million debt overhang.
In 2011, Jaggers assets went under the hammer to pay off US$443 795 that the company owed to Delta Beverages.
Another prominent entrepreneur who is in the clutches of a debt recovery onslaught from CABS is Pandhari Lodge proprieter Mr Sunday Chifamba. His property – Stand Number 754 in Glen Lorne measuring 4298 square metres – is in danger of being auctioned off for struggling to pay off obligations amounting to US$3,3 million. He has since repaid US$2 million and is engaging the bank to renegotiate terms to pay back the outstanding amount.
Youthful emerging businessman Mr Trevor Mupamhadzi, who was the owner of Potrid Clothing, is also reeling for a debt he owed to Kingdom Bank, which has however since closed. A property measuring 10 hectares, which has been subdivided into plots measuring 2000 square metres and 21 houses at various stages of completion, will soon be sold as the bank seeks to recover its dues. Former newscaster Mr Walter Mupfanochiya is also reeling. POSB is set to sell his house in Budiriro over an undisclosed debt.
But it is not only individuals that are struggling as prominent companies are also being sucked in the debt spiral.
Kingstones Limited’s four-storey head office along Kwame Nkurumah Avenue is in danger of being sold for outstanding obligations owed to ZB Bank.
Similarly, Millenium Tobacco Floors “and two others” are smarting from an unserviced debt to Kingdom Bank.
As a result, its property along Adare Road, Rolfvalley, Harare will be sold.
Targeted businessman provides insight
Pandhari Lodge managing director Mr Sunday Chifamba last week provided a rare insight into the treacherous conditions that have affected local businessmen.
According to Mr Chifamba, he had fallen behind payments to CABS “because for the past two years, business was bad, very bad”.
The bulk of the money he is now servicing is in interest repayments.
“We don’t dispute that we owe them; this property has a mortgage with CABS hence the moves we have been making to find ways of settling the arrears.
“Our plan was that we pay them US$100 000 on Friday (last week) and the balance should be rescheduled and we pay at least US$30 000 per month in 20 years,” said Mr Chifamba.
The two parties’ met on Wednesday 0morning for marathon discussions that were designed to cobble up a payment plan. It is however believed that Cabs is reluctant to accept payment plans.
The Messenger of Court and auctioneers visited the premises on Friday July 24 to view the conference room, but they could not access the property as it was in use.
They never returned. Added Mr Chifamba: “To my surprise, they go ahead and indicate in the newspaper advert that they were denied access. How do you deny the Messenger of Court access when we all know that they do whatever they can to gain entry into any premise?
“Now the property they want to sell is not Pandhari, Stand Number 754 does not have any rooms. It only has four conference rooms, a kitchen and a thatched gazebo and a few offices.
“It encroached a little onto Stand Number 753 (which has the hotel) but I am surprised that while the stay of execution we got from the court has not been finalised, they are coming back.”
High interest rates squeeze borrowers
Last week’s statistics from the central bank show that banks continue to pour much of their resources to consumption through individuals. As at June 30, 2015 the banking sector loans to deposit ratio stood at 74,4 percent and US$4,9 billion of the US$5,6 billion deposits was loaned out.
Individuals got 25,65 percent of the allocations mainly through salary-based loans, while the manufacturing sector only received 10,87 percent of the funds.
But interest rates between 18 percent and 25 percent are still considered punitive. Market watchers say local interest rates are high because most of the bank deposits at 55,49 percent are demand deposits or transitory. Demand deposits cannot be used to fund long-term projects. In most case the high interest rates have led to high default rates and high non-performing loans in bank portfolios.
The RBZ acknowledges that interest rates are unsustainably high.
Dr Mangudya said in the mid-term Monetary Policy Statement on August 5, 2015 banks should reduce their cost structures “to enable them to contribute to the reduction of the cost of doing business in Zimbabwe”.
Interest rates have since been capped at 18 percent.
Under the new regime, prime borrowers with low credit risk will be charged between 6 percent and 10 percent per annum, while those with moderate risk will be levied 10 percent to 12 percent. Borrowers with high credit risk will have to put up with interest rates of between 12 percent and 18 percent.
Also, defaulters will be charged penalty rates from 3 percent to 8 percent over and above the interest rate charged. Currently, defaulters are charged as much as 20 percent in penalties. University of Zimbabwe economics lecturer Dr Albert Makochekwanwa intimated last week that the fluid and unpredictable economic environment was the main reason for defaults.
He said borrowers are aware of the interest rates well before they commit themselves.
“Other individuals, together with companies, also borrow to try and boost their business only for them to suffer from competition or their products become uncompetitive. Such situations result in them failing to repay their loans,” said Dr Makochekanwa.
Other economists opine that the country’s risk premium naturally makes borrowings expensive. Financial Express analysts Mr Respect Gwenzi believes that external lines of credit have been scarce and where available, they have bee offered “relatively at a premium to the rest of the region”.
“This country risk weighs on the overall cost and successively drives the net upwards.
“The premium is reflected in the high price of money, and this has in turn made it difficult for borrowers to repay loans. Besides the premium is the short term nature of funds, and borrowing from the yield curve, it is clear that short term money is more expensive, but the need for survival has pushed firms to opt for that available option in desperation.
“However, this has not helped either as it resulted in erosion of operating profits and losses in some instances. Persistent losses have in turn resulted in defaults in some cases,” said Mr Gwenzi.
He observed that consumptive borrowers have equally been caught in the same trap regardless of punitive rates charged.
Banks, he said, had to “relay their rates downwards”, giving a safe margin ahead of the libor (London Interbank Offered Rate) and minimise extension of funds to unproductive sectors.
RBZ moves in, rescues five firms
The apex bank is now moving in to rescue highly indebted companies who fortunes can be reviewed when their debt is either rescheduled or restructured.
This is now being done through the Zimbabwe Asset Management Company(Zamco) – a special purpose vehicle created by the RBZ to acquire toxic debts on bank balance sheets . Last week, the RBZ indicated that it has since taken over debts worth US$58 million for four yet to be named distressed firms.
On the overall, the spike in the number of properties being auctioned by financial institutions to recover their money has reignited the debate on whether or not to reschedule debts to allow borrowers some breathing space in light of economic challenges.
While the banking sector’s aggregate ratio of non-performing loans (NPLs) to total loans has eased from a peak of 20,45 percent in June 2014 to 14,52 percent as at June 30, 2015, there is still pressure for them to further reduce them.
The benchmark internationally acceptable limit for NPLs is 5 percent.
