Parliament’s Public Accounts Committee (PAC) has ordered the Reserve Bank of Zimbabwe (RBZ) to submit a list of all 1,016 beneficiaries of the central bank’s non-performing loan bail-out scheme within the next two weeks.
The development is reminiscent of the debate, leading up to the takeover of the RBZ’s US$1.4 billion debt by the government in 2015, when some lawmakers demanded that the central bank publicly disclose the names of persons and entities who had benefited from its borrowing.
Former finance minister Tendai Biti, who chairs the committee, came face to face with RBZ governor John Mangudya in a parliamentary hearing on Monday. The hearing, which many expected to produce fireworks, was a largely convivial affair, only occasionally swinging from civility to tetchiness.
The RBZ set up the Zimbabwe Asset Management Company (ZAMCO) in 2015 as a special purpose vehicle meant to buy non-performing loans from banks that were groaning under the burden of the toxic assets.
According to central bank data, the bad loan ratio soared from 1.8% at the end of 2009 to reach an alarming post-dollarisation peak of 20.45% in September 2014.
By December 31, 2018, ZAMCO had taken up $1.13 billion in bad loans. Finance Minister Mthuli Ncube has ordered the asset manager not to take up any further assets.
ZAMCO takes over the non-performing loans from banks, which are then given long-term Treasury Bonds as consideration. Some major businesses, including RioZim, Cottco and StarAfrica Corporation have used ZAMCO to reschedule their debts.
In the case of RioZim, the miner in 2016 issued unsecured preference shares to ZAMCO in exchange for its bad loans.
To date, ZAMCO has collected nearly $250 million from the $1.13 billion loans it took on.
Members of the PAC alleged that ZAMCO had been abused, to bail out political elites struggling to service their loans.
“The question that honourable members are asking is that, what is your criteria? The allegation that they are making is that you have subjective criteria, which is based on political muscle and the list of people who have benefited from ZAMCO are the political heavyweights of this country,” Biti charged.
ZAMCO chief executive Cosmas Kanhai, who was in Mangudya’s retinue at the hearing, rejected the charge, saying the asset manager only acquired loans which banks were willing to sell in the first place.
“Our criteria is very clear. The loan has to be a non-performing loan, the bank has to be willing to sell that NPL and, in terms of pricing, the loan has to be secured by a mortgage bond. That’s the one we use to price the NPL. If the loan meets that criteria, we can take it over. Most NPLs fail because the bank may not be willing to hand it over and there’s nothing we can do.”
Mangudya weighed in: “The purpose of ZAMCO is to provide relief both to the banks and to individuals and firms facing hardships. We’d be very happy to hear those individuals and firms that were rejected by ZAMCO on the basis of what the honourable member has said.”
After a parley lasting several minutes, and with skeptical lawmakers still refusing to accept the central bank officials’ assurances, MP Bramwell Bushu (ZANU-PF, Shamva South) moved that the committee be given the list of all borrowers whose loans had been taken over by ZAMCO.
“Given the answers given earlier, is it possible to get a list of the beneficiaries of ZAMCO?” Bushu queried.
“The honourable members are saying, to dispel our contention that the purchase of loans has been subjective and has been given to the political Who’s Who of Zimbabwe, can we have the list?” Biti reinforced.
Kanhai shot back: “ZAMCO, just like any banking entity, is governed by banker-customer confidentiality.”
Biti interjected: “ZAMCO is not a bank, it’s a private company owned by the central bank. Customer privilege can’t apply here.You’re not protected by banker-customer privilege.”
Kanhai argued that the confidentiality principle still applied
“When ZAMCO takes over a non-performing loan from the banking sector, it steps into the shoes of the banks,” the ZAMCO chief argued.
An increasingly agitated Biti bellowed: “The customer loses his privilege of protection because he has abused the banker-customer relationship by failing to pay. So he is getting an indulgence from taxpayers’ money. So he can’t hide under privacy, after failing to pay.
We have powers of demanding that list as Parliament and we’re demanding that list. Please give us that list within two weeks.”
Mangudya and Biti also sparred over the central bank’s role in contracting foreign debt without parliamentary approval, something the opposition lawmaker and constitutional lawyer said was illegal.
In defence, Mangudya said the central bank was guided by the RBZ Act, under which it was obliged to take direction from the minister of finance. The central bank governor said Biti had himself operated the same way when he was finance minister, between 2009-2013.
The RBZ chief revealed that Zimbabwe, over the past year, had taken out nearly US$1 billion in foreign loans, the bulk of it from the African Export Import Bank (US$641 million), the PTA Bank (US$152 million), Banco de Mozambique (US$25 million) and the African Development Bank (US$15 million).
Mangudya said the loans are mostly secured by future gold exports, a factor which possibly explains the central bank’s insistence on a regime of ‘surrender requirements’ for gold producers. Gold producers only get 55% of their export earnings in foreign currency, with the balance being converted at a new inter-bank rate.
The committee, which also probed Mangudya on bond notes, had to adjourn shortly before 2pm after just over two hours in session. The committee hearing is scheduled to continue on March 11.