The Reserve Bank of Zimbabwe (RBZ) has requested technical assistance from the International Monetary Fund (IMF) to curb the rising non-performing loans (NPLs) that are threatening the survival of the banking sector.
RBZ Statistics showed that the ratio of non-performing loans (NPLs) to total loans increased to 16, 96% as at March 31 2014, up from 15,92% as at December 31 2013.
An NPL is when payments of interest and principal are past due date by 90 days or more, or at least 90 days of interest payments have been capitalised, refinanced or delayed by agreement.
In a report after the annual Article IV consultation, IMF said RBZ "plans to request Fund TA [technical assistance] on its resolution strategy".
"Work is under way to finalise the framework for a credit reference bureau which is expected to reduce asymmetric information and improve credit risk management," IMF said.
Under the credit reference bureau, financial institutions share information on the creditworthiness of clients before they disburse loans. In the current set up, clients can hop from one bank to another, borrowing money and creating high chances of default.
The increase in NPLs has raised fears that banks could cut on lending at a time companies require working capital and money for retooling.
In a recent report, research firm MMC Capital warned that reduced lending "will have a huge bearing on the economy as the reduced credit supply will lead to working capital challenges and in many instances businesses will fail to fund capital expenditure".
"The net result will be a decline of private gross fixed capital formation and private consumption which in turn will negatively impact economic growth," MMC said.
MMC said the unavailability of credit to finance firms' working capital requirements and investments might trigger the second round business failure, which in turn exacerbates the quality of bank loans, resulting in the re-emergence of banking failure.
"The worst case scenario for rising NPLs is that it triggers an endless vicious liquidity spiral," the report said.