Central bank creates firm to soak up bankers’ bad debt

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BR Reserve Bank of Zimbabwe 2479[1] Independent Newspapers The central bank has set up the Zimbabwe Asset Management Corporation (Zamco) to mop up non-performing bad loans. Photo: Mujahid Safodien

Tawanda Karombo Harare

ZIMBABWEAN banks, which are facing increasing pressure from workers demanding salary raises, have received a major boost after the central bank – which said this week that first-half investments dwindled by as much as 59 percent – established a company to take up bad debts held with financial institutions.

The larger and firmly established foreign banks in Zimbabwe are said to be less interested in the treasury bills that the government is floating to pay up money the central bank owes companies.

Standard Bank, the JSE-listed parent company of Zimbabwe’s Stanbic Bank, is poised for a collision with Zimbabwean authorities after its workers said it was exploiting them through under-remuneration and bad labour practices.

The demonstration against Standard Bank is poised to affect other banking institutions, with industry union leaders revealing that some banks were still carrying out internal negotiations.

However, if these fail, “we will start bigger demonstrations and urge the public to boycott the banks that would have refused to award salary rises” to their workers, according to one representative involved in the (bank workers’ salary) negotiations.

“Standard Bank should respect their workers in Zimbabwe if they have decided to continue with the Zimbabwe unit,” Farai Katsande, the president of the Zimbabwe Allied and Bank Workers Union told bank workers gathered for the demonstration in central Harare on Monday.

Stanbic Bank workers are demanding a 10 percent salary rise from the $625 (R6 690) that the least paid bank worker earns a month, in addition to payments for medical bills and a $200 school fees allowance for each employee.

The demands for increased salaries are set to stretch the banks’ operating cost base as employment costs already account for the bigger costs that banks have to meet.

Moreover, interest income has been on the decline for most banks while profitability has also subsequently taken a knock at MBCA, CBZ and Old Mutual-controlled mortgage lender, CABS.

The central bank has moved in to plug some of the problems that Zimbabwean banks are facing by setting up a company, the Zimbabwe Asset Management Corporation (Zamco), which will be used to mop up non-performing bad loans held by the banks.

John Mangudya, the central bank governor, said in his monetary policy statement on Monday that this would help “strengthen” the banks’ balance sheets.

The Zimbabwean banks’ non-performing loans “have been rising from 1.6 percent in 2009 to 18.5 percent as at June”, Mangudya said.

He said non-performing loans above 5 percent could be a threat to the country’s financial sector stability and disastrous for the economy, although banks such as Barclays Zimbabwe had adopted stricter lending criteria to keep their non-performing loans ratio low.

“Cabinet has approved the establishment of a national special purpose vehicle known as Zimbabwe Asset Management Corporation to acquire non-performing loans from banks in order to clean up and strengthen banks’ balance sheets and provide them with the liquidity to fund valuable projects for the economy to rebound and to mitigate loss of confidence,” the central bank chief said.

Zimbabwe is desperate to restore confidence in its economy and institutions, while also trying to woo international investors to sink money into projects in the country.

President Robert Mugabe, struggling to stabilise the economy after winning the election in July last year, is currently in China hoping to strike deals that will give the economy financial clout.

However, according to the central bank, investors now appear to be snubbing the country after first-half investment inflows into Zimbabwe declined by 59 percent.

Economists and fund managers say investors have been spooked by the country’s placid and less predictable legislative and operating framework.

“Foreign investment inflows into Zimbabwe have remained subdued due to the perceived country risk.

“For the first six months of 2014, the country received a paltry $67 million compared with $165m during the same period in 2013,” Mangudya said.


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