NMB Holdings saw its non-performing loans (NPLs) almost doubling to 22,8% in the first half of the year, reflecting the stagnation and the liquidity problems facing the economy, chief executive officer, James Mushore said last week.
An NPL is a sum of borrowed money upon which the debtor has not made his or her scheduled payments for at least 90 days.
A non-performing loan is either in default or close to being in default. Once a loan is non-performing, the odds that it will be repaid in full are considered to be substantially lower.
In its financial results for the half year ended June 30 2013, NMB's total non-performing loans were at US$41 977 499 from US$23 996 312 recorded in December last year, raising fears the bank was not aggressive enough in collecting money from clients.
Mushore told an analyst briefing last week that NPLs were largely trending upwards due to the liquidity problems though the bank will intensify recovery strategies and also massage clients back to health.
"I think the stagnation in the economy and the liquidity problems are going to be exacerbated now with the cuts or cancellation in rates and bills. The suggestion of cancellation of other utility bills is certainly going to impact on liquidity going forward and obviously this affects everybody," Mushore said.
"We are confident that we are going to see a reduction in that NPL ratio to below 20% by year- end."
In terms of lending, 30% of the bank's lending was to the distribution sector.
The manufacturing sector's share of loans was 14%, reflecting the struggling nature of the manufacturing industry, according to NMB chief financial officer Benson Ndachena.
The high number of NPLs was in the distribution sector and deputy group chief executive officer Francis Zimuto said the exposures were secured by realisable securities.
"We don't rush to sell people's properties. We try to nurse them back to health. Despite the huge increase in NPLs, there has not been a similar increase in provisions because of the securities we have," Zimuto said.
Provision for impairment losses on loans and advances was US$9 million.
In the outlook, Mushore said the bank would seek to explore opportunities in the low-income bracket and the small to medium enterprises to generate more income.
The bank's thrust has been the corporates and high net worth individuals.
Banks have recorded a high number of defaults in the multicurrency era as clients fail to repay. This has led to properties being auctioned to offset debts.
While the multicurrency regime is credited with stabilising the economy, it eroded the Reserve Bank of Zimbabwe's (RBZ) powers to intervene in the economy through monetary policy interventions, effectively confining its role only to regulation.
Central banks in Europe have been able to intervene in the Euro crisis by using or adjusting their monetary policies, through introducing austerity measures as and when needed.
An austerity measure is an official action taken by governments through central banks in order to reduce the amount of money that it spends or the amount that people spend.
This ultimately has an effect on the liquidity position of a country's financial markets.
Without the ability to control a country's monetary policy and implement it, the central bank is ineffective in introducing austerity measures when needed.