Zimbabwe: U.S.$1 Billion Fund to Take Over Troubled Banks' Loans

A SYNDICATED fund, led by private equity firm Global Emerging Markets (GEM), has put up US$1 billion to enable Zimbabwe's government to assume commercial banks' non-performing loans and rescue depositors in the affected banks, the Zimbabwe Independent can reveal.

Presenting his state of the economy address yesterday, Finance minister Tendai Biti said his ministry was working with a foreign private sector partner to raise money to bankroll a 10-year bond issue, which will enable the government to clean the troubled banks' balance sheets and pave way for the restoration of the Reserve Bank of Zimbabwe's (RBZ)lender-of-last-resort function. The bond will most likely be issued by Zimbabwe Resolution Corporation (ZRC), an entity to be created for the purpose.

Under the structure proposed by GEM, seen by the Independent, banks would be allowed to sell their non-performing loans (NPLs) to the ZRC under commercial terms, assigning collateral and all other rights attached to the loans.

In turn, ZRC would be funded through the issuance of long-term tax-free bonds, guaranteed unconditionally by the Finance ministry. Government would raise a levy of 2% of total risk weighted banking assets, for a period of 10 years, to create a sinking fund for ZRC. As banking industry assets increase, the levy would be reduced over time.

Although Biti would not be drawn into naming the foreign partner who would support the bond issue, authoritative sources disclosed that GEM, the firm that also underwrote mining company RioZim's capital-raising exercise earlier this year, had put in place the US$1 billion syndicated facility.

Some of the targeted investors making up the syndicate are Afreximbank, pension managers PIC, the Development Bank of Southern Africa, international sovereign wealth funds, Nssa, domestic banks and domestic depositors.

The sources say GEM submitted a proposal and subsequently reached an agreement with the Ministry of Finance to help in reforming the banking system, which faces systemic risk owing to the high levels of non-performing loans. Biti said the bond would be issued following an Act of Parliament. His ministry was in the process of crafting a draft bill in consultation with various stakeholders.

The ministry will also set up a special purpose vehicle to take over debts accumulated by the RBZ since the days of hyperinflation, in line with International Monetary Fund recommendations.

Biti said bad loans accounted for as much as 80% of some banks' loan books.