RBZ governor John Mangudya in his maiden monetary policy statement under the theme Back to Basics said NPLs in the country’s banking sector had reached 18.5% (US$705m) as at June 2014. The international benchmark standard for NPLs is only 5%.
Mangudya said the SPV known as Zimbabwe Asset Management Corporation (Zamco) was set up to acquire NPLs from banks to clean up and strengthen their balance sheets. This would provide them with the liquidity to fund valuable projects for the economy to rebound, and to mitigate loss of confidence.
“Apart from being a source of concern for financial stability, there is strong evidence that NPLs have led to a decrease in credit growth which is undermining current economic recovery efforts,” said Mangudya.
He added that high NPL levels can be a threat to financial stability and economic growth.
Under the SPV, banks would sell NPLs to Zamco under commercial terms, assigning collateral and all other rights attached to the loans. Zamco will be funded by a combination of non-funded lines of credit, new inflows, long term bonds and treasury bills.
NPLs amounting to $45m have already been acquired by Zamco from three banks as at August 15.
The RBZ believes restructuring NPLs will provide relief to borrowers whose fundamentals remain strong but require reasonable funding costs and a tenure that can be accommodated in their cash flows.
Nigerian success story
Zimbabwe is not the first country to create an SPV to deal with non-performing loans, as Nigeria successfully implemented the same concept in 2010.
Nigeria experienced an excessively high level of NPLs in 2009, with a percentage of non-performing loans to total loans ranging from 19% to 34%.
In response, the Central Bank of Nigeria formed the Asset Management Company of Nigeria in 2010. The SPV significantly reduced NPLs from 34.4% in November 2010 to 4.95% in December 2011.