The Sunday News
Nqobizitha Dhlamini Business Reporter
FINANCIAL institutions have expressed concern over the possibility of high loan defaults by individuals especially those who are being sacked by corporates following a Supreme Court ruling.
Last month, the Supreme Court passed a ruling that gave firms the power to terminate contracts of employment upon issuing three months’ notice without offering an explanation or following the retrenchment route, triggering massive contract terminations with industrial experts estimating that more than 18 000 workers have been fired.
The number is set to increase in the coming days as more companies are reportedly in the process of implementing the ruling.
However, banks have noted that most of the affected workers had borrowed money on the strength of their salaries and the terminations would trigger massive loan defaults by the affected workers.
According to latest statistics released by Reserve Bank of Zimbabwe Governor Dr John Mangudya in his monetary policy statement on Wednesday individuals are holding 21 percent of the domestic debt to local financial institutions second only to light and heavy industries at 25 percent.
Although Bankers Association of Zimbabwe president Mr Sam Malaba had not responded to emailed questions to give an overview of the banking sector, individual banks were reportedly shaken by the prospect of increasing the number of sacked workers.
The head of Consumer Service and Customer Relations at Barclays Bank Zimbabwe Mrs Emily Nemapare said her institution now needed consent of employer to issue out loans to individuals as they wanted to safeguard depositors’ money.
“We acknowledge the recent development in the market regarding the labour law and we remain committed to ensuring the security of depositor’s funds through a prudent risk framework.
We are also continuing to monitor the situation of which we will require the consent of the employer before issuing an employee a loan for the security of the depositors’ money in the event of the labour law affecting them, ” she said.
Other banking institutions said they had agreed that all new loans must be guaranteed either by a letter from the employer indicating that the applicant would be employed during the period of the loan repayment or a letter guaranteeing that the employee will cede his/her pension to the bank if sacked.
“Still on the issue of pension we want the employer and employee to provide details of the value of the pension because some had not accumulated figures that might be enough to guarantee the amount they intend to borrow,” said an official with a banking institution.
Another banking executive who preferred anonymity said companies had to be careful when terminating employee contracts as the agreement they had signed with banks remained binding.
“If employment contracts of employees are terminated and they were on the payroll loan, the employer remains liable to the bank as they would have guaranteed the bank of repayment,” he said.
Furthermore, he said, companies, by virtue of guaranteeing employee loans stand to be exposed in case that agreement is breached.
“When banks issue people payroll loans, they require the employer to guarantee that the loan will be paid back and in the event of retirement or termination of contract, the bank is paid back through receiving the benefits of the employee in arrears.
“Therefore, in the event that an employee’s contract is terminated without the benefits, the employer is supposed to pay back the loan to the bank.
Failure to do so the bank has every right to cash in on the company’s assets in order to regain their money,” he said.
Mr Blessing Mukusha, an economist said some companies were bound to find themselves in debt if they do not exercise caution upon firing the workers.
“Some of these companies are terminating employment contracts without thorough research on the history of the employee in the company.
It is very important for employers to properly check their records before being caught in the craze of terminating contracts lest they fire people who owe the banks,” he said.
Because of increasing economic difficulties many workers and individuals in general have turned to loans from banks and microfinance institutions to supplement their needs.
