Botswana’s finance minister, Peggy Serame, has gotten approval from parliament to recapitalize the struggling National Development Bank (NDB), which is being turned into an agricultural bank – more than a decade later after the state bank was supposed to have been privatized.
On Wednesday, when presenting her ministry’s detailed budget proposals for the 2023/2024 financial year, Serame requested approval to fund NDB with P500 million to transition it into an AgriBank, which will house all agriculture-related development financial institution lending.
“This project is strategically aligned to the priority on value chain development with a focus on horticulture, small stock, cereal and grain production. The transformation of NDB is consistent with government drive to rationalise its institutions and enhance service delivery to Batswana as entrenched in the Reset Agenda,” Serame said.
“National Development Bank is thus in the process of securing a transactional advisor who will in turn assist in identifying a strategic partner to support the transformation.”
She disclosed that NDB has made progress in completing the audited financial statements with the latest being March 2022, which means that the bank has caught up on all outstanding audits to date.
In 2021, NDB was one of the main state owned entities flagged by Botswana Accountancy Oversight Authority (BAOA) for persistent delays in finalisation of financial statements, poor reports from internal, external auditors and regulators, as well as significant losses.
According to BAOA, NDB was compliant in financial reporting during a review carried in 2019 but was behind in releasing audited financial statements. On the operational side, NDB has been making losses despite large capital injections from government, prompting talks of privatization that go as far as 2011.
Before P13.9 million profit recorded in 2020, NDB’s last profit was in 2014 after netting P86.3 million, and from there on it has been string of losses; a loss of P37.2 million in 2015, followed by another loss of P21.2 million. Faced with mounting losses, the bank in 2016 received a capital injection of P400 million from the government – with P100 million as equity and the remaining P300 million as a loan.
However, that did not improve the bank’s performance, instead things even got worse. In 2017, NDB made its largest loss of P168.2 million and followed again in 2018 with another huge loss of P152.8 million. The losses narrowed to P6.1 million in 2019, after getting a capital injection of P200 million from government to stay afloat.
The bank’s dismal performance has been blamed on poor collections strategy, compounded by weak risk management that have seen impairments rising in the last reporting period.
The bank was due for privatization after parliament passed the NDB Transition Bill in December 2013. Outlining the privatization in 2015, former finance minister Kenneth Matambo said government will retain 51 percent shareholding, while 30 percent will be offered to citizens, five percent to NDB employees and the 14 percent will be held by citizens and foreigners.
After four years passed since the pronouncement, Matambo reiterated in 2019 that the bank will be privatized.
“Implementation of the turnaround strategy is currently on ongoing until 2021. Ultimately the bank will be privatized. A consultant has since been engaged to advise and assist in this regard,” Matambo said at the time.
To improve the bank’s profitability, there has been suggestions to change its business model. In 2018, Bank of Botswana Governor Moses Pelaelo said the central bank was worried about NDB’s precarious financial position. He made the remarks when appearing before parliament’s Statutory Bodies and State Enterprises committee, adding that as a central bank they cannot directly intervene because it is outside their purview.
However, he advised that government should decide if they want NDB to continue as a development bank or change its business model to reduce the losses.
“We are worried about the deterioration in NDB’s financial position. As you know, the bank does not take deposits and it is funded by the government. By extension, the losses are funded by the government” said Pelaelo at the time.
As the COVID-19 pandemic wreaked havoc in 2020, NDB was among the financial institutions engaged by the government to implement the Industry Support Fund (ISF), which was aimed at assisting small and medium businesses adversely affected by the pandemic. The bank was mandated to administer P600 million of the ISF under the agriculture, tourism and medium scale general industry tranches. To date, P475 million of the ISF has been loaned by NDB to 548 entities, sustaining 15, 252 jobs, according to Serame’s presentation.
