Non performing loans analysis - Mr. Francis Macheka: Page 3 of 4

the opportunity cost of holding non-performing loans by the banks is the returns that bank could get if that money had been put to productive use. This cost affects both the bank and the economy at large.

Strategies to remedy NPLs

 

In his Monetary Policy statement in July, Dr Mangudya said the banking sector's aggregate ratio of NPLs to total loans improved from a peak of 20,45 percent in June 2014 to 14,52 percent as at 30 June 2015. This rate has retreated to 13 per cent as at 31 August 2015 with a target to move towards a single digit of 5 per cent by June 2016. Financial institutions are saddled with about $577 million worth of NPLs and the RBZ has been working with the sector to clean the institutions' balance sheets.

 

Against a background of high levels of NPLs, and their economy-wide implications stated above, the Reserve Bank has instituted holistic measures to resolve non-performing loans in the banking sector. In addition, banking institutions have instituted various measures to resolve the NPLs including the following:-

 

  1. Restructuring of debts through engagements with defaulters.

 

  1. Formation of dedicated loan recovery units by financial units. This is to ensure that dedicated resources are focused on dealing with NPLs.

 

  1. Formation of the Zimbabwe Asset Management Corporation (ZAMCO) which has been tasked to deal with NPLs for distressed companies. Banks have since surrendered over $188 million worth of NPLs for takeover by the Zimbabwe Asset Management Company. The bulk of this amount is from distressed strategic companies in agriculture sector and manufacturing. This process is still ongoing and is a major factor that has caused the NPL ratio to be on a downward trend.

 

  1. Handing over defaulters to lawyers for litigation purposes. Although this is not the best since the legal process tends to be long, it is necessary when dealing with errant defaulters. Some defaulters whilst have the capacity to pay, they just lack the will to do so.

 

  1. In case of Agribank as