Zimbabwe’s State-Owned Bad Loan Buyer Seeks Private Funding

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Zimbabwe Asset Management Co., set up by the country’s central bank to buy non-performing loans, said it will seek funding from institutional investors locally and outside the country to help fund its operations.

The company known as Zamco, established in August to tackle surging levels of bad debt that had reached as high as 90 percent at some financial institutions, is evaluating the purchase of $383 million of loans, Chairman Bart Mswaka said in an e-mailed response to questions.

“Zamco will also work hand in hand with accredited asset managers/investment advisers who will augment Zamco’s funding sources through raising funds from institutional investors both local and foreign,” Mswaka said. It will also borrow money and be funded from the sale of Treasury bills and bonds, he said.

The central bank said Zamco had been established to deal with as much as $700 million worth of bad loans at banks including Metbank Ltd., Allied Bank Ltd., AfrAsia Bank Zimbabwe Ltd. and Tetrad Investment Bank Ltd. AfrAsia’s license was canceled in February, the same month Tetrad was placed in judicial management.

Zimbabwe’s economy shrunk by half during a near decade long recession that ended in 2009, according to the government. Growth is now slowing as consumer demand slumps, causing many companies to close. Across the entire banking industry non-performing loans averaged 16 percent as of December.

Zamco won’t take over loans made by banks to managers or board members, Mswaka said.

‘Moral Hazard’

The company will start by purchasing non-performing loans secured by mortgage bonds and it will take over the bond and collateral obligations from the selling institution, he said.

“The NPLs acquisition approach is meant to avoid creating moral hazard in the banking sector,” he said. “This will avoid Zamco being seen as pardoning past bad lending decisions.”

Foreign investors will be invited to participate in funding the resolution of the loans, he said.

“Zamco should step into the shoes of the bank and enjoy the same rights over collateral,” he said. “There may be instances where additional security may be required, especially in instances where there is refinancing or restructuring of the loan.”

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