Non performing loans analysis - Mr. Francis Macheka




Zimbabwean banks have adopted a cautious approach to lending following a sharp rise in non-performing loans. A number of financial institutions have obtained writs of execution to attach property to recover money from defaulting clients.


Acknowledging the gravity of the problem, the Reserve Bank of Zimbabwe Governor Dr John Mangudya has accorded the resolution of the NPLs problem top priority as enunciated in the recently announced Monetary Policy Statement.


Main causes of NPLs


  1. Diversification of funds/poor management of funds


  1. Weak loan portfolio management by bank staff especially weak credit analysis from the beginning.


  1. Integrity of borrowers/lack of transparency by borrower.


  1. Change of country policies – country laws that do not favour lending business.


  1. Court injunction instituted when bank intends to dispose properties/low prices fetched when disposing mortgaged assets.


  1. Business failure/inexperienced or lack of entrepreneurial knowledge on borrowers side.


  1. Natural calamities/change in economic conditions like inflation, draught etc.


  1. Death of key person. This usually applies to family owned business or where there is a single business owner.


  1. Unfaithfulness of bank staff (corruption)


  1. Lack of reliable market information


Impact of NPLs to Financial Institutions and the economy at large


There are many reasons why as country and the policy makers should be worried about NPLs given this is not only a monetary phenomenon but it also impact heavily on the real sector.


  1. Weakening borrowers’ capacity to service debt


The impact of the real economy on NPLs is mainly explained by weakening the borrowers’ capacity to repay their debt, while the feedback from NPLs to the real economy is often identified through the credit supply channel.


  1. Increase uncertainty regarding bank’s capital position


NPLs increase the uncertainty regarding the capital position of the banks and therefore limit their access to financing. This