Zimbabwe mulls special vehicle to take over lenders' bad loans

Mon Jun 30, 2014 1:57pm EDT

* Central bank considers hiving off non-performing loans

* Zimbabwe bad loans well above regional average

HARARE, June 30 (Reuters) - Zimbabwe's central bank is considering establishing a body to take over local lenders' non-performing loans and make it easier for them to attract new capital, its governor said on Monday.

Several banks are struggling to stay above water as defaults grow, forcing them to turn to foreign investors to recapitalise and undermining President Robert Mugabe's black economic empowerment drive.

The Reserve Bank of Zimbabwe (RBZ) was considering transferring bad loans held by banks into a special purpose vehicle, in which foreign investors could buy a stake, Governor John Mangudya said. The investors would then assume responsibility for recovering the loans.

"If we get someone with funds, say offshore for example, we will be able to hive off those non-performing loans aside, so as to remove those contagion effects from banks," Mangudya told journalists after a presentation in parliament.

Banks have been aggressive in lending to local firms since Zimbabwe started using foreign currency in 2009, when hyperinflation rendered the local dollar virtually worthless.

But the impact of indiscriminate lending and an economic slowdown has since forced some financial institutions to close after failing to raise new capital to cover bad loans.

Total outstanding loans in the January-April period amounted to $3.6 billion, RBZ data show. Of these, 17 percent were classified as non-performing, much higher than the southern African regional average of 10 percent.

Zimbabwean banks had now become more conservative to minimise the risk of loan defaults, Mangudya said.

Some 18 banks currently operate in the country, five of which are owned by British and South African institutions. Four banks hold 60 percent of the $4.7 billion of deposits in the financial system. (Reporting by MacDonald Dzirutwe; Editing by Mark Trevelyan)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.