NDB AND THE STRAINING PURSUIT OF PROFITABILITY

NDB AND THE STRAINING PURSUIT OF PROFITABILITY

The single-largest agricultural financier, the National Development Bank (NDB) is in a quest to restore the Bank to profitability and increase the loan book in its process of financing developmental projects, Staff Writer KEABETSWE NEWEL, chronicles a Bank that took the highest form of risk to develop economic sectors in Botswana, rather than a selfish profit pursuit mastered by private financial institutions.

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You see, NDB, is not just a Bank. It is much more than your usual profit hungry commercial Bank which will do anything to make money. When legislators established the Bank, through an act of Parliament in 1963, there was a vision behind that. Development. Then, Botswana was among the poorest countries in the world. An institution that could financially empower projects that emerge from the ground was needed. Yes, it was inevitably risky to finance right from the ground, in some cases without collateral. But it had to be done, given that government, the sole shareholder of the financier was earnest in achieving an economic transformation. Then, Botswana’s economy was reliant on agriculture, which contributed over half of the national production.

How best to accelerate the economy, than to ensure access to funding to further develop the very sector that was the then mainstay of the economy. The NDB, established itself to over the years be known as the agricultural Bank, or rather, the farmers’ Bank. Under NDB, all agricultural projects get funding, and all these projects are those that even today, cannot get funding from any other commercial Bank even various financial institutions. NDB, a development finance institution (DFI) also seemed to be interested in playing a role in developing Botswana from subsistence farming to a more beneficial commercial farming, driven by the will to improve food security in Botswana while at the same time pushing for economic transformation.

It was the NDB, which was a key financier when the Pandamatenga Farms, located in the fertile soils of the north western regions of this country, were established.
Some commercial farming takes place in the lands around Pandamatenga, where the introduction of Australian farming techniques has increased productivity on one of the properties. This is the strategic food production centre for Botswana hence all hopes for self-reliance in food production lies here.

The NDB disbursed more than a whopping P600 million, towards infrastructural development of the Pandamatenga Farms. On top of that, Pandamatenga Farms obtain a seasonal fund of P100 million from the DFI. The Panda farms, have now, through the unguaranteed financial support from NDB, grown to be known as Botswana’s food basket. The Pandamatenga area already contributes 80 percent to 90 percent of the cereal produced locally, which is about 10 percent of the cereal consumed nationwide. Pandamantenga farms have become a household name in farming circles feeding the country with even basic food commodities including maize and sorghum thanks to modern methods of farming not least the electrification of the project. All farmers save for one, are funded by NDB in Pandamatenga. Further, the Bank also took another bold step aimed at developing the agricultural sector, by helping establish Mosisedi Farms, in Borolong-Mabule area, south of Botswana. From the NDB Mosisedi secured more than P40million in addition to the infrastructural developments already completed at the projects.

Mosisedi farms are expected to augment Pandamatenga farms themselves similarly having started from scratch with the financial assistance of NDB. Being explicitly mandated as a development finance institution, the Bank has however broadened its scope over the years to accommodate non-agricultural projects under its fold. These are projects under commerce, all retail, service and Tourism Industries. The Bank also finances all Industrial, manufacturing, processing and mining. Under real estate, there is property development and purchase (office, retail, industry and commercial residential space), as well as human developmental projects in the name of educational loans, residential loans to mention but a few.

On the flip side, there is hell to pay for an institution that chooses the path of a Development Financial Institute, than that of money hungry commercial outlets. NDB, finances projects from scratch, these are projects than can never qualify for funding in commercial banks because they have to first establish themselves. Chief Executive Officer (CEO) of the NDB, Lorato Morapedi speaks with emphasis stating the developmental nature of the NDB mandate. She is quick to warn that NDB could simply apply the methods used by private banks, minimize risks and fund only successful projects. “ How would that affect the development side of the economy? The small man with vision? Someone has to help in financing projects from scratch, some of which are today bigger projects,” she said. It is the role of a DFI to primarily develop, knowing the risks associated with being a DFI.

Even the now established farms of Pandamatenga and Mosisedi have risks. Being dry land farming, production can vary depending on a season. She says some farmers are funded for cattle breeding, but can, in the process face challenges of Foot and Mouth Disease (FMD), and even drought which total cut off their income to pay NDB. Morapedi said when she took over as CEO, she found a Bank which had Non-Performing Loans (NPLs), which she inherited and incorporated in her loan book. Further,W she said government spending, because of suppressed economic growth hit hard especially on small businesses which the NDB finances, which resulted in defaults.

NDB’s NPLs grew significantly resulting in high impairments as well. During the 2016 fiscal year NDB recorded P184 million in impairments. Further, Morapedi says the bank is dealing with a lot of legacy issues, in which most of the NPLs were inherited. However she said NDB has worked hard to also identify all the NPL accounts, which have since been fully monitored and followed up. In 2016 alone, NDB has collected P116 million from disbursed loans. The NPLs stood at P674 million in 2016, which is an equivalent of 45 percent of the NDB loan book. “As a bank, we have decided to write off some of these bad debts so that we start off on a clean slate,” she said. Her plan is to then identify more projects, but with a more intensified vetting and risk management so as to grow the company loan book, make more interest income and consequently drive the NDB towards profitability.

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In his generation Newel is one of the most recognisable names in Business journalism. A recent finalist in Media Institute of Southern Africa Media Awards, Newel has written extensively in the boardroom dynamics around public pension funds and related investment interests. His areas of interest are companies and markets, including the financial reports of major companies in the country. Currently he is pursuing the developments around the management contracts for one of Africa’s most lucrative Public Pension Fund, the Botswana Public Officers Public Funds.