No more NPL acquisitions says Zamco after closing the window on submissions in Q1
HARARE – The Zimbabwe Asset Management Company (Zamco) has no appetite to acquire more non-performing loans, as continued acquisitions might erode the incentive to guard against risk in the financial sector.
Zamco chief executive Cosmas Kanhai said that continuous acquisitions by company posed the risk of promoting moral hazard in the banking sector, whereby banks can lower their underwriting standards hoping that any loans that go bad will be sold to Zamco”.
Kanhai said that banks will now have to resolve any new NPLs arising after 31 March 2017 internally as Zamco no longer has any intention of acquiring bad debts. He added that Zamco will now focus on resolution and collection of the already acquired NPLs, having closed the window for submission by banks of NPLs they wish to dispose at the end of the first quarter.
Zamco acquired NPLs amounting to $24.23 mln in the first quarter of 2017 and is currently conducting evaluations of the NPLs offers that were submitted by banks at the close of the acquisition window.
The Reserve Bank of Zimbabwe created Zamco as a special purpose vehicle to house banking sector NPLs, and leave banks with cleaner balance sheets. A number of strategies were used to fund NPLs acquisition, including Treasury Bills and loans from foreign funders.
Zamco recently said 45% of the current stock of bad loans that were absorbed by are viable while the remainder should be aggressively pursued before the company’s mandate runs out in 2024. Agriculture, at 25%, accounts for the bulk of NPLs housed by Zamco, mining (16%) and manufacturing (15%). The construction sector accounts for the least of the NPLs at 2%.
Kanhai said the TB Redemption Sinking Fund is growing as Zamco resolves and collects from the acquired NPLs during the resolution stage while Funds held in the TB Coupon Sinking Fund are being used to pay for the half-year coupon obligations
The sinking fund which was created to assist towards NPl acquisitions is funded through periodic payments that are realised from restructured loan repayments and the disposal of properties or collateral as and when they occur.
“Repayments that are being made by borrowers are allocated to two sinking funds: TB Redemption Sinking Fund and TB Coupon sinking fund. The funds in the TB Sinking Fund will be used to redeem the TBs when they mature at the end of their tenures. The TBs used to acquire NPLs have tenures ranging from 12 to 15 years”, he said.