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UPDATE 1-Zimbabwe launches asset manager to buy bank bad debts
August 26, 2014 / 11:12 AM / 3 years ago

UPDATE 1-Zimbabwe launches asset manager to buy bank bad debts

(Adds detail, background)

HARARE, Aug 26 (Reuters) - Zimbabwe has set up an asset management company to buy non-performing loans from banks, the central bank governor said on Tuesday, a move designed to restore stability to a sector stung by rising bad debts.

Reserve Bank of Zimbabwe Governor John Mangudya said the newly-created Zimbabwe Asset Management Corporation (ZAMCO) had bought $45 million of bad debt from three banks as of Aug. 15, although he declined to give further details.

“This intervention became necessary to ensure financial stability,” Mangudya told Reuters.

Mangudya first announced plans to set up a vehicle to mop up bad debt from banks in June. He said President Robert Mugabe’s cabinet had now approved ZAMCO’s creation.

Banks have been aggressive lenders to local firms since Zimbabwe started using foreign currency in 2009, after 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 they failed to raise new capital to cover bad loans.

In a monetary policy statement on Monday, Mangudya said 18.5 percent of the $3.81 billion outstanding loans were classified as non-performing, up from 1.6 percent five years ago.

The central bank has not specified exactly how much of the $705 million in non-performing loans ZAMCO will mop up, though the fund is expected to take a majority.

ZAMCO, in which pension funds and local and foreign investors would have shares, would assume responsibility of recovering the loans over a longer period of time.

The asset manager will buy the bad debt from banks using cash and treasury bills at a discount.

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

Two locally-owned lenders, Tetrad and Allied Bank, were in distress while Metbank and AfrAsia, majority-owned by foreigners, were facing solvency and liquidity problems, Mangudya said in Monday’s monetary policy statement.

Last month, the country’s finance minister said up to five lenders, all locally owned, were in distress. (Reporting by MacDonald Dzirutwe; editing by David Clarke)

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