ZIMBABWE's financial sector is likely to change dramatically if plans by the Bankers Association of Zimbabwe (BAZ) to set up a credit bureau are seen through.BAZ, through its president George Guvamatanga, recently advised the Reserve Bank of Zimbabwe governor Gideon Gono in a letter seen by businessdigest, that the bankers were at an advanced stage of establishing a credit bureau, working with an international technical partner, TransUnion.
"We recognise that the absence of a credit bureau has created information asymmetry which is being exploited by borrowers who commit against the same cash flows from different banks. This is resulting in the discounted cash flows of the said borrowers not being able to service debts.
"We estimate that most firms and individuals in the market could be overborrowed and this may be contributing to the current state of acute debt overhang and cases of unsustainable levels of default in the banking sector," Guvamatanga said.
The bankers said this phenomenon was a major driver of non-performing loans in the banking sector, estimated to be 7% of advances. However, the figures could be higher if debt rollovers or the restructuring of loans to overdrafts were included in the calculations.
The bankers' association said it believed a credit bureau would decrease information asymmetries between borrowers and lenders and allow lenders to more accurately evaluate risks and improve portfolio quality.
This would eliminate the adverse selection problem that was present and ultimately lower costs of credit for the good borrowers, while increasing availability of loans to a wider clientele.
A professional credit reference system will also support automated underwriting, lower operational costs and ultimately increase profitability for banks, BAZ said.
Guvamatanga observed that non-performing loans were also contributing to liquidity challenges in the market, a sentiment that he shared with BAZ CEO Sijabuliso Biyam, who said there was more than US$3 billion in loans in the market, but the money lent out was not circulating.
Expanding on the plans for a credit bureau, Biyam said: "Unfortunately we are bound by certain confidentialities but we are working with an international technical partner to set up a credit bureau, which should be operational by September of this year."
Biyam said the new credit bureau would maintain a database of all borrowers in the economy, enabling banks and other third party creditors to avoid being overextended.
BAZ was committed to working with the Ministry of Finance and the Reserve Bank to maintain stability in the banking sector and to ensure that banks fully assume their intermediation role in the economy.