Is this responsible lending?

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HARARE – In the past two or so years, Zimbabwean banks have significantly increased their lending.

But that has mainly been local banks.

Foreign-owned banks have been quite averse, despite a push by some elements to unzip their purses.

Generally, the foreign institutions have been on the cautious side.

The issue here is about responsible lending. A significant portion of the loans is unsecured. These are mainly personal or as some call them, home loans.

We believe these institutions should also take caution.

Although we don’t overlook the fact that it drives consumer expenditure with positive ripple effects on the economy, there is concern.

The institutions could be building toxic loan books.

It’s a potential time bomb, especially considering the looming election and of course the prevailing liquidity crisis.

Traditionally, Zimbabwe’s elections are violent, scaring away investors in the process. It dampens economic activity. Companies shut down and jobs are lost.

Let alone the economy — recuperating from a decade-long battering — is still fragile.

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The risk is high.

This is what happens. A bank gives an individual a salary-based loan.

Usually, it is three times their monthly net earnings.

Some banks have even pushed to up to five times.

The individual does not surrender any collateral to the bank.

The bank recovers its money through deducting instalments from borrower’s salary.

The payback period is usually 12 months.

But, imagine this. The borrower loses their job or company liquidates. The borrower cannot pay back. This is the worst case scenario.

Apparently, borrower dishonesty emerges as a major risk. There are increasing cases of borrowers changing banks.

While we might come across as alarmists, there are examples where this practice has cost institutions big time, eroding their profits.

Last year, Absa — South Africa’s third-largest banking group — reported a six percent drop in first-half to June earnings, hit by a spike in bad debts in its home loans business.

The bank’s flagged profit was likely to fall as much as 10 percent due to the sour loans.

During the period under review, credit impairment charges, or bad debts costs, soared 40 percent to  R4 billion.

After all is said and done, we feel there is need for authorities to look into this, though we are quite sure they are watching from a distance.

In SA, the Banking Association, equivalent to Bankers Association of Zimbabwe, and the Finance ministry have taken considerable interest in the hype around unsecured lending having spiked.

Maybe the local banks feel obliged. But it’s not secure.

There is need for security. This could be casino banking. – Staff Writer

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