‘Politicians not looting Agribank’
http://www.theindependent.co.zw/
Thursday, 24 March 2011 19:38
THE Agricultural Bank of Zimbabwe (Agribank) last Friday signed a US$30
million facility with the Industrial Development Corporation (IDC) of South
Africa, whose objective is to support agro-based companies. This week
Agribank CEO Sam Malaba (SM) spoke to businessdigest chief business reporter
Paul Nyakazeya (PN) about the facility, bad debts, government’s shareholding
in the bank, common trends in the banking sector and the agriculture
industry.
PN: What is the nature of the facility you signed with IDC South Africa last
week?
SM: It is a US$30 million facility agreement marking one of the first
transactions of its kind since the signing of the Bilateral Investment
Promotion and Protection Agreement (Bippa) between South Africa and Zimbabwe
last year. Of that amount, US$20 million will be allocated to firms
operating in the agri-business, manufacturing and mining sectors, US$10
million will be lent to IDC Zimbabwe.
PN: What are the conditions to the firms or sectors that will benefit from
the facility?
SM: It has a tenor of six years and grace period of one year for capital
repayment. It is a development facility. The IDC is more concerned to see
job creation and increasing production capacity.
PN: Are there any mechanisms to ensure that those who benefit from the funds
direct it towards the agreed purpose?
SM: Yes they are, as we do with all farmers who borrow from the bank. We are
the borrowers of the funds and we will ensure that the funds are utilised as
per agreement and are paid back timeously.
PN: What interest do the loans attract?
SM: As arranged by our co-advisory firms, Musa Capital and Neverseez
Capital, the borrowing from the IDC is being forwarded at competitive
Libor-indexed interest rates and is structured to ensure that a large
portion of the funding will be used by Zimbabwean companies to purchase
South African goods and services, at the same time providing opportunities
for both countries.
PN: I understand the bank had embarked on an exercise to cut down its branch
network by about 25% and lay-off staff in a move to lower costs. What is the
position now?
SM: We have closed nine branches and laid off 160 employees through a
voluntary retrenchment exercise. We, however, are looking at opening
branches in strategic areas such as mining towns or where agricultural
production is increasing.
PN: How much did you spend on severance packages?
SM: A total of US$1,7 million.
PN: What criteria were you using when you embarked on the branch
rationalisation exercise and how many do you now have?
SM: The move to cut branches and lower the bank’s staff complement was
necessitated by low business activity and the need to stay afloat. We were
targeting loss-making branches. Consideration for closure was influenced by
lack of business activity, connectivity challenges and branches not owned by
the bank. From 53 branches we are left with 44.
PN: We understand the bank has found an equity partner after cabinet gave
the green light. Who are the new shareholders in the bank?
SM: We will announce who the partner is at the appropriate time. I,
however, can tell you that the new partner will provide equity funding as a
strategic partner in the bank. Government is not selling the bank
PN: Banks were racing to raise capital through rights issues and private
placements in order to meet Reserve Bank minimum capital requirements. What
is the position with regards to your bank?
SM: We are in a closed period and as such cannot discuss any figures with
regards to the bank. We can only discuss that after our financial results
are announced. They should be on the market before March 31.
PN: Has the bank written off bad debts owing to farmers or politicians
failing to honour their obligations? We hear politicians account for the
bulk of nonperforming loans.
SM: The perception that politicians are looting the bank is not correct.
Very few politicians are on the bank’s book and those borrowing pay back
like any other farmer. No loans were written off for political reasons and
that is why the provisions for bad and doubtful debts are not high. Remember
we are audited. If there were such developments, they would be highlighted.
If that were not the case, institutions such as IDC South Africa were never
going to be interested in doing business with us.
PN: What has been the bank’s average provision for bad and doubtful debts?
SM: Agribank’s average provision for bad and doubtful debts between 2001 and
2006 was about 18,4%, which is in line with provisions by other banks.
Between 2007 and 2009, the provision was 3,9% mainly due to the
hyperinflationary environment. To break it down in 2006 it was 3,8%,
2007-1,2%, 2008 -2,7%, 2009 -1,2% and 2010 – 1,6%
PN: Government being the major shareholders of the bank, how has the placing
of the bank on the sanctions list affected your operations?
SM: The placing of the bank on the US sanctions list saw our South African
account being frozen. Initially the bank’s Nostro Accounts were frozen by a
South African bank for about a year and this affected our foreign currency
account holders who wanted to utilise their foreign currency to purchase
inputs and fertilisers for their farming programmes. We cannot hold US
dollar denominated Nostro Accounts (an account that a bank holds with a
foreign bank) with any international bank.
PN: What common trend do you see in the future of banking in the country?
SM: I see more competition, with the return of banks such as Royal, Trust
and Time Bank. All banks will be competing for deposits. Banks will be
looking for strategic partners to strengthen their balance sheets. I also
see improved liquidity and lines of credit.
PN: Do you think the public now has confidence in the banking sector?
SM: I think they have. But most people’s salaries are still very low such
that they withdraw it all once it reflects in their accounts. They do not
have enough money to save such that it will appear as if people do not want
to leave their money in banks.
PN: What do you think of the indigenisation regulations?
SM: Any investor would want to know the rules of the game. Let’s state the
rules. Most countries have indigenisation laws. As long as you clearly
define the rules and abide by them it will be acceptable.
PN: Is the agriculture sector being fully supported?
SM: It is and there is room for more support. The sector is critical in any
country. A number of significant projects are being done in the country.
Production in tobacco, cotton and maize is improving.