Wednesday, June 12, 2024

Troubled NDB gets P200 million lifeline


The struggling National Development Bank (NDB) is getting another massive capital injection hardly two years after the government pumped funds into the loss making state owned bank.

In a breakdown of the proposed budget for the ministry of Finance and Economic Development, NDB will get a large share of the development budget. The ministry’s chief, Kenneth Matambo, told parliament on Tuesday that the ministry needs P950.9 million for recurrent budget, while the request for development budget came at P515.7 million.

The ministry’s development budget is up 187 percent from the prior year due to the re-capitalization of Botswana Savings Bank and NDB, both accounting for 66 percent of the proposed development budget. The loss making NDB is getting a capital injection of P200 million as it struggles to stay afloat following four years of losses.

The bank last made profit in 2014, netting P86.3 million, and from there on it has been string of losses: recording 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, the state owned development bank made its largest loss of P168.2 million, and followed again in 2018 with another huge loss of P152.8 million. The bank’s dismal performance has been down to poor collections strategy, compounded by weak risk management that have seen impairments rising in the last reporting period.

Matambo admitted as much that the bank incurred losses mainly due to non-performing loans. This is despite the adoption of the bank’s 2015 turnaround strategy which was focused on reduction of non-performing loans and improving the quality and size of the loan book. The minister told parliament that approved loans during 2017/2018 reached P250.3 million, with 54 percent of the credit extended to the risky agricultural sector.

The struggling bank is due for privatization after parliament passed the NDB Transition Bill in December 2013. Outlining the privatization in 2015, 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. Almost four years after that pronouncement, Matambo this week reiterated 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 on Tuesday.

While the turnaround strategy involved improving the quality of the loan book to reduce impairments, the bank last year retrenched almost half of its work force as part of a rationalization exercise to lower operating costs. The bank parted with 56 employees or 40 percent of the staff, in an exercise that cost P26 million. Still, those familiar with the operations of the bank say the retrenchment exercise will do little to turnaround the bank, considering that that the retrenchment will only save the bank P21.3 million of staff salaries and benefits. For the bank to return to profitability, they have suggested a change in business model.

Last year, Bank of Botswana Governor Moses Pelaelo, said the central bank is worried about NDB’s precarious financial position. He made the remarks when appearing before 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” Pelaelo said at the time.


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