BY PORTIA NKANI
Following their decision to part ways with 56 employees at the end of last year, the National Development Bank (NDB) is now a leaner, effective and efficient financial institution that is confident it will turn over a new leaf and be profitable in the next two years.
A radical staff rationalisation and performance optimisation exercise adopted by the bank last year has ignited its hope to return back to profitability and sustainability.
NDB is the next on government’s privatisation agenda, of which the process is still under suspension, pending the completion of the commercialisation stage.
During this period, the bank will be closely monitored on its performance before it can turn into a company for its ultimate privatisation.
The development bank, known to be one of the worst loss making parastatals over the years, became the first parastatal in recent history to take six months to complete such a taxing exercise with minimal disagreements.
The Sunday Standard has established that the NDB spent around P26 million on the exercise.
Documents passed to this publication reveal in coming up with the proposed optimal staffing numbers and the interim organisational resourcing; amongst the most critical considerations was to look at the Banks’ high cost-to-income-ratio (CTI) with forecast to reach up to 231 percent by March 2019.
And so was the need to cut at least 40 percent of staff which accounted for P21.3million of the current payroll. It also considered the size of its loan book and disbursements budget for the next two years.
Also high level principles were adopted in order to facilitate the process and act as a guiding tool such as costs and profitability.
Under this principle, during the process, no new positions were created unless the creation was justifiable and no external recruitment took place.
Meanwhile, in a press statement issued by the Bank this Friday Harry Marks – Director of Branding, Marketing and Communications at NDB ÔÇô had this to say: “Going forward we will focus on sustainability and excellence. With shareholder support and recapitalization, I am confident that we will be able to generate profits for the shareholder in the next two years while continuing to provide much needed services to our customers.”
NDB has also successfully lobbied the Parliamentary Committee on Public Enterprises and Statutory Bodies to approve its recapitalisation, which will complement its drive towards profitability and sustainability.
“It had always been clear that NDB needed to reduce its cost to income ratio as it was not generating enough interest income because of liquidity issues. The economic meltdown, droughts, pests and outbreak of diseases also left NDB saddled with escalating impairments as result of non-performing loans,” explained Marks in the press statement. He added that, efforts were also made to fill all available positions with internal staff and not recruit from outside.
Marks pointed out that all employees were taken through psychiatric and financial counselling, which will continue until the end of January 2018. Should any vacancy arise within the next six months, the retrenched employees will be given preference for re-employment provided they meet the requirements. Their companies will also be given preference in awarding of tenders. However, said Marks, this dispensation will remain in place for only 24 months from date of separation.
The rationalisation and optimisation exercise started in August after it was approved by the NDB Board. In line with Section 25 of the Employment Act, NDB consulted with all employees, stakeholders, the Regulator and the shareholder about the impending exercise, clearly indicating the possible consequences.
A Negotiation and Consultation Committee (NCC) was set up with membership from management, NDB staff and union leaders. The NCC endorsed the project plan, redefined structures and set guidelines for placements and separation packages.
In a joint statement seen by this publication, on the status report on negotiations on separation packages in respect of this exercise with the employees trade union; employees enjoyed their severance/accrued gratuities and payment towards the balance of contract period remaining, medical aid offerings, leave days, relocation allowance, group life insurance staff loans, portfolio loans, motor vehicle insurance cover.
The leaked documents further reveal that, the Bank paid the exiting employees medical aid assistance for all eligible employees as per the Banks’ policies on medical aid contribution for a period of 12 months in order to accommodate transition into alternative medical service providers.
The same period will also be extended to chronic ailments programme to allow employees to facilitate a smooth transfer to an alternative programme at the initiation of the concerned individual.
All accumulated leave days shall also be paid off. Every employee separating with the Bank will be paid P12, 000.00 to be utilised for their relocation.
They will also continue to enjoy the current group life insurance. However this will run only up to March 2019 which is the expiry contract date with AON. 25 percent discount on full or partial settlement within 12 months from separation to be covered for staff loans, where they shall enjoy the staff interest rate for 24 months.
Loans without retrenchment cover should be settled in full from any resultant package paid out by the Bank, but in the event the package is less than the loan balance, alternative payment arrangements will be made.
In portfolio loans, a 12 percent discount or partial settlement has been agreed on, plus an early settlement penalty interest waiver of a salary based portfolio loan within 12 months after separation.
For motor vehicle insurance cover, retrenched employees interested in 12 months car insurance cover through the Bank shall opt to pay a lump sum covering the 12 month insurance period. But consent from concerned employees for the deduction will be needed to be legally compliant subject to insurer’s terms and conditions.
The rebirth of NDB started with the adoption of a turnaround strategy late last year, that was aimed at addressing a number of challenges, key among them profitability, sustainability and efficiency in operations.
Over the years, the bank has found it increasingly difficult to emerge from a loss making position as it was faced with escalating impairments occasioned by non-performing loans, a shrinking loan book that was insufficient to meet operational costs and high costs of funding as a result of borrowing from the open market at high interest rates.
As a development finance institution (DFI), NDB has a higher risk tolerance and therefore makes long-term investments at subsidised rates in enterprises that are considered too risky by private capital. This was an unsustainable undertaking, considering the fact that bit sourced funds from the market at high interest rates.
NDB provides mostly unsecured loans to commercial farmers and often finds it difficult when customers are unable to service their loan facilities due to droughts and diseases affecting animals. It also provides loans for other sectors such as commerce, industrial and real estate.