Sunday, September 20, 2020

NDB at the crossroads

Government’s intentions to privatize the National Development Bank went a step up this week when PEEPA (the Privatisation Agency) convened stakeholders to gather more views on how to go about the process.

The meeting also offered the transaction advisors, Nedbank Capital, an opportunity to present their findings on how they thought government’s interest would be best served and protected were NDB to be privatized.

Government was represented by Assistant Minister of Finance and Development Planning, Keletso Rakhudu.

Rakhudu underscored the fact that while government has kick-started the process, the transaction can always be called off or suspended if there was a realization by cabinet that the interests of Batswana were not best served by the ongoing transaction.

He said given that NDB has, over the years, been able to cut itself a robust niche on the agricultural sector, any potential buyer would have to factor in the skills depth nurtured in that regard and formulate a business plan that clearly indicated how a privatized entity would utilize those skills.
“Rather than destroy that strength, any potential buyer would have to build onto it,” said Rakhudu.

One of the consultants working with Nedbank Capital, Keith Jefferies, said while the price tag of the transaction would be key in the transaction, “it is not necessarily the case that NDB will be sold to the highest bidder”.

Dr. Jefferies said the successful business Plan will have to elaborate in detail where the privatised NDB will fit in the government’s overall scheme of development strategy.

Minister Rakhudu emphasized that the feeling inside government has now moved ahead from whether or not to privatize to how to go about the process.
He said government is aware that the change of ownership alone will not improve NDB service delivery, hence government will dictate certain aspects of the transactions.

Specifically on NDB, Rakhudu said some of the reasons for which the bank was created in 1963 have now been overtaken by events, especially with regard to significant growth in Botswana’s banking sector.

A representative of Nedbank Capital, Shabiah Norath, said a lack of access to cheap depositor funds makes competitiveness a big issue for NDB. This has undermined the bank’s ability to achieve optimal yields, he said.

Norath said while NDB is financially sound, the fact of the matter is that over the years the level of non-performing loans has also been steadily growing.

Norath said it would be foolhardy for any potential buyer to think they can easily walk away from the agriculture niche that NDB has so successfully cut for itself.

But he added that, put side by side, with its peers in the market, NDB has achieved a very small market share.
“Comparatively, NDB’s performance has not been at par with the market,” he said.

Figures from NDB’s financial statements over the years indicate that its return on equity has consistently been well below what would be expected from a private financial institution, hence the motive to put it into private hands.

“The movement in NDB’s credit loss ratio has been volatile in the past five years. Impairment levels have increased steadily from 2005 to 2007 with a large increase of 120.3 % from 2007 to 2008,” said the advisors.

On the constraints faced by NDB as it grapples with the task of finding a footing in an increasingly competitive and sophisticated market, the consultants said NDB’s mandate as per the Act of parliament establishing it requires the institution to lend to certain risky sectors where it cannot earn appropriate return for the risks assumed.

“The Act sets a limit on the quantum of loan funds that can be accessed by NDB making it harder to grow the business as there is a limit to the amount of money that can be borrowed in order to make loans.”

Furthermore, the advisors observed that the law under which NDP operates has other impediments.

“The Act further dictates the types and nature of products and services NDB can offer which inhibits the flexibility of NDB to offer certain products and services.”

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Sunday Standard September 20 – 26

Digital copy of Sunday Standard issue of September 20 - 26, 2020.