eBusiness Weekly
Oliver Kazunga
The Reserve Bank of Zimbabwe (RBZ) has warned of a second wave of Non-Performing Loans (NPLs) in the country’s banking sector if industry continues borrowing in hard currency.
In 2014, with the technical assistance from the International Monetary Fund (MF), the Central Bank established the Zimbabwe Asset Management Company (Zamco) to acquire NPLs from commercial banks’ collaterised loan books to clean up their balance sheets.
The NPLs were accumulated largely due to reckless lending and corruption in the financial services market.
Zamco has since wound up its operations after paying off, last year, $1,2 billion it received from the Government to acquire NPLs.
At the time of its formation, NPLs ratio had risen 20,45 percent against the internationally acceptable threshold of 5 percent.
Responding to questions from the floor at the launch of the 2022 Confederation of Zimbabwe Industries (CZI) annual manufacturing sector results in Harare last week, the RBZ Governor Dr John Mangudya, red flagged the resurgence of second wave of NPLs in the financial services sector.
“If you go to any country today and you tell them that we are going to have the co-existence of the US dollar and their own soft currency, the danger is people will move towards the hard currency. But is this sustainable.
No.
“So, don’t even borrow more in US dollars, borrow more in Zim dollars because if you borrow more in US dollars with the margins shrinking, interests going up, we are going to have Non-Performing Loans, you are going to put a burden to banks because you won’t be able to sustain or remain stable,” he said.
Last year, RBZ raised its bank policy rate from 80 percent to 200 percent to tame speculative borrowing that had become rampant and partly blamed for driving exchange rate volatility and inflation resurgence.
CZI has stressed that increasing interest rates created a shock in the market in terms of price adjustments by companies that had borrowed in Zim dollars, as they needed to pass on the increase to consumers to curb losses.
However, in the 2023 Monetary Policy Statement presented in February, RBZ revised downwards interest rates to 150 percent and dropped again by 10 percent to 140 percent.
But the industry maintains that the lending rates are still on the high side.
It has been observed that NPLs are an albatross to the performance of the banking sector through reduced earnings and loss of capital.
Furthermore, a number of bank failures that Zimbabwe experienced in recent years, among others, were attributable to NPLs.
Saddled with a high NPLs ratio, local banks were no longer keen to lend to the productive sectors of the economy thus adversely impacting job creation and economic growth.
The acquisition of NPLs by Zamco has cleaned up and strengthened the banking industry’s balance sheets and provided them with additional liquidity that has enhanced their financial intermediation role, including pooling savings and channeling them to the productive sectors of the economy.
The asset management company was established in terms of 57A of the RBZ Act with a mandate to wind up operations off its operations within 10 years of establishment but has winded up after achieving its mandate well ahead of the stipulated time frame.
Meanwhile, capacity utilisation in the manufacturing sector in 2022 dipped to 56,1 percent from 56,52 percent the previous year.
In his remarks, CZI president Kurai Macheza at the launch of the survey results indicated that Zimbabwe faces a titanic mission in pursuit to attain an upper middle-income economy society by 2030 as the level of growth in the manufacturing sector sustainably hovers below 10 percent per annum.
Zimbabwe’s industrial representative body argues that the manufacturing sector can only contribute exponentially towards the ambitious vision if growth rates above 10 percent per year are attainable.
“The rate of growth we need for the sector to get to the upper middle-income status is no less than 10 percent per annum. And as an economy for us to achieve that Vision 2030 from where we are right now with the remaining years, we certainly need to be growing no less than 10 percent per annum.
“So, it is a mammoth task that we all must endeavour to deliver,” he said.
Underpinned by the National Development Strategy 1, a five-year economic blue-print which expires in 2025 before being succeeded by a similar policy, NDS 2 to run from 2026 to 2030, the Government is angling for an upper middle-income status.
