The International Finance Corporation (IFC) has set aside $100m (Shs360b) to buy out Non Performing Loans (NPLs) from African banks.
The move, according to IFC seeks to develop well-functioning secondary markets across the Africa.
This was revealed by Mr Sérgio Pimenta, the IFC vice president for Middle East and Africa during during a recent interview with the Africa CEO Forum.
Mr Pimenta noted that the move is also intended to avoid the collapse of companies that were involved in accessing credit as well as helping banks to offload large amounts of non-performing loans off their books.
IFC has created a Special Purpose Vehicle to buy the loans from financial institutions using debt management companies starting with southern Africa states of South Africa, Botswana, Eswatini, Lesotho and Namibia.
However, Mr Pimenta said the special purpose vehicle is expected to expand into East Africa, starting with Kenya in 2021 with over $300m (Shs1 trillion) in the project pipeline.
Pimenta said Covid- 19 had heavily impacted African economies with the entire continent experiencing a recession. However, he noted, financial institutions will have a vital role to play in the recovery with a prediction that bank revenues will return to pre-crisis levels between 2022 and 2024.
“In Africa, even before Covid-19, this was an issue IFC was taking a look at and it’s even more relevant today because non-performing loan volumes are on the rise. These loans impact banks’ bottom line,” he said.
Mr Godfrey Byekwaso, the Centenary Bank general manager finance, welcomed the move, noting that non-performing loans are stressing banks’ cash flow positions as well as their ability to lend more.
A Moody’s Investors Service Outlook for African banks for 2021 shows that difficult operating conditions will persist and it is expected that non-performing loans are potentially going to double from 2019 levels as payment holidays expire.