Frequently Asked Questions (FAQS)
The Zimbabwe Asset Management Corporation (ZAMCO) was established by the Reserve Bank of Zimbabwe in July 2014 as part of the holistic measures to deal with high levels of non-performing loans in Zimbabwe’s banking sector. The company’s primary mandate is to efficiently resolve non-performing loans in the banking sector by acquiring, restructuring and managing the NPLs.
The company has an autonomous 10-member board that provides oversight on its operations. The board members have extensive experience in varied fields such as banking, asset management, financial markets, manufacturing, and financial regulation.
NPLs are a drag on the performance of banking institutions through reduced earnings and loss of capital. A number of bank failures in Zimbabwe were a result of high levels of non-performing loans. Saddled with high NPLs, banks are no keen to extend lending to the productive sectors of the economy, thereby affecting job creation and economic growth. The NPLs acquisition will clean up and strengthen banks’ balance sheets and provide them with additional liquidity, which will enhance their important financial intermediation role i.e pooling savings and channeling them to productive economic activities. The restructuring of non-performing loans will also provide relief to borrowers whose fundamentals remain strong but require reasonable funding cost structure and appropriate loan repayment periods that can be accommodated in their cash flows.
The sale and purchase of non-performing loans (NPLs) that will be undertaken between the Zimbabwe Asset Management Corporation (ZAMCO) and banking institutions will be on a willing-buyer-willing-seller basis. The offer to sale the NPLs to ZAMCO should, thus, be initiated by banks who own the assets (i.e. NPLs) and not by the respective borrowers.
No. ZAMCO will only purchase NPLs in banks that are operating. The Deposit Protection Corporation (DPC) is responsible for resolving NPLs for closed banks.
No. ZAMCO will only purchase loans that meet its set eligibility criteria. During the first phase of the loan acquisitions, ZAMCO will focus on loans that are secured by immovable properties (real estate properties) that are not granted to insiders. In later phases of acquisitions, ZAMCO will consider purchasing loans that are secured by other types of collateral. The purchases that will be done during the first acquisition phase will be in tranches, for example, starting with acquiring the top 100 loans in the banking sector, and then moving to the next batch of loans.
No. ZAMCO has an obligation to collect outstanding amounts on the loans it purchases to the fullest extend possible.
After purchase of loans from the banking sector, ZAMCO will conduct comprehensive credit analyses on the obligors to identify viable and non-viable business operations. Viable companies will undergo financial restructuring (eg extending loan repayment periods, reduction of interest rates) or corporate restructuring to meant to re-orient a company’s business with a view to resuscitate its operations. ZAMCO can also sell the viable NPLs to interested investors. For non-viable businesses that cannot be rehabilitated, ZAMCO’s resolution options include selling collateral and liquidating the companies.
There will not be a uniform discount rate that will be applied on all loans. Discount rates will vary per each NPL and will be determined by factors such as nature & value of collateral, expected loan repayments and the extent of perfection of security.
Has ZAMCO secured funding to buy the NPLs from banks and what will be the form of payment for acquired NPLs?
Yes, the company has secured the necessary funding. During the first phase of the acquisition, payment will be in the form of long dated treasury bonds that will be issued to banks. The banks can use the bonds as collateral in raising liquidity or can trade the bonds on the market for cash.
ZAMCO will create a sinking fund where loan repayments and other cash flows will be channeled. The sinking fund will be used to redeem the bonds at maturity.
First, banking institutions need to offer eligible loans for sale to ZAMCO the loans that they intend to dispose. ZAMCO will then conduct legal due diligence on the offered loans. The main purpose of the legal due diligence is to assess whether the loans being offered were properly granted by the banks, have collateral that has been duly registered, can be legally transferred to ZAMCO and which ZAMCO can have the same rights over collateral as the selling banks. Concurrent with the legal due diligence exercise will be the valuation by professional property valuation firms of properties that banks hold as collateral. The value of collateral is a key component in the pricing of the no-performing loans. The last steps of the acquisition process will involve agreeing with banks the price of loans being sold, signing relevant sale & purchase agreements and settlement of the purchase consideration.
ZAMCO’s operations will be conducted essentially in three phases namely setting up phase, acquisition phase and resolution phase. From inception in July 2014 to May 1015, the company was in first phase of its operations, which involved setting up the company, putting in place appropriate corporate governance structures and developing the requisite policies and procedures. During the setting up phase, the company obtained technical assistance from the International Monetary Fund (IMF). The IMF technical assistance was meant to ensure that our policies and procedures are aligned with international best practice. During this period also, the company conducted preliminary assessments of NPLs that could be eligible for purchase across the banking sector. In addition, the company also acquired a small portfolio of loans from a few banks. These purchases were made using funding provided by certain private investors who were interested in the loan portfolio.
The acquisitions are expected to begin in June 2015 onwards.
If ZAMCO purchases NPLs from banks, does it mean that they now control the operations of the borrowing companies?
No. The companies remain controlled by their shareholders, boards of directors or management. At acquisition of the loans from banks, ZAMCO will acquire the same rights as the selling banks have, among these, the rights to collect the amounts due, and the rights over the collateral that has been pledged as security, and the right of creditors to force a company into liquidation. The rights over collateral will enable ZAMCO to sell the underlying security if it considers that the debt is no longer recoverable from repayments by the borrower. However, in other circumstances where ZAMCO enters into restructuring agreements with borrowers, it may seek rights to have control over the operations of the company. These rights are meant to ensure that business operations are conducted in a manner that would reasonably assure ability of the company to repay the debt.
We have granted a loan to a company that has also borrowed from other banks? Do all the lenders need to agree to sell the loan to ZAMCO?
Not necessarily. It would be better if all the banks can agree to sell their respective loans granted to the same borrower to ZAMCO. Should all the lenders fail to reach agreement to sell the loan, ZAMCO can still go ahead and purchase the loans that would have been offered, taking cognizance of superior liens on collateral. During the due diligence processes, however, ZAMCO would also need to look at the other loans not offered for sale in order to fully understand the borrower’s exposures.
ZAMCO will not be subjected to the short-term liquidity pressures that banks face due to the long-term nature of its funding. This will enable ZAMCO to offer companies can be rehabilitated longer term funding at affordable costs. To circumvent the long judicial processes that banks face in foreclosure, ZAMCO will seek special powers that will enable it to foreclose and dispose collateral in a shorter time period.
ZAMCO was established in terms of the Companies Act [Chapter 24:03] in July 2014 and its Memorandum and Articles permits the company to conduct asset management activities. Provisions outlining the objectives, powers and responsibilities of ZAMCO among others will be incorporated as amendments to the Banking Act [Chapter 24:20].
The company is not expected to operate in perpetuity and will cease to operate once it has achieved its mandate of reducing NPLs in the banking sector. ZAMCO has set a sunset period of 10 years to end its operations.
The Reserve Bank of Zimbabwe supervises the company. ZAMCO will provide bi-annually and annual reports to the Reserve Bank on its operations. An external auditor will audit the operations of ZAMCO annually. The company’s reporting framework also outlines reporting requirements to members of the public including publication of annual reports and posting relevant information on the ZAMCO website.
As ZAMCO is a public body, strict guidelines are in place regarding the procurement of services. ZAMCO will establish panels of service providers as and when the services are needed. All such panels are formed through open public procurement processes involving advertising on our website or in the press.
Apart from Acquisition of loans by ZAMCO, what else should be done to solve the challenge of High NPLs?
ZAMCO is only one of the holistic measures that need to be implemented to deal with NPLs. Other measures that need to be in place include improved credit risk management by banks, enhanced supervision of banks by the Reserve Bank, establishing a credit reference bureau and fostering a sound macroeconomic environment in Zimbabwe.