BOB castigates NDB, CEDA
- NDB, CEDA funding unsustainable
- Non-Performing-Loans on the rise
- Blames weak enforcement on loans recovery
Government owned financing institutions; the National Development Bank (NDB) and the Citizen Entrepreneurial Development Agency (CEDA) have been blamed for lackluster performances resulting from amongst others, ‘irresponsible and unsustainable’ lending and weak oversights, by the Bank of Botswana (BoB).
The castigation happened last week at the launch of Bank of Botswana Annual Report and economic briefing which was headed by Governor Moses Pelaelo.
According to the central bank, the perennial lackluster performance of the NDB and the funded businesses/projects as evidenced by the number, value and persistence of non-performing loans and capital erosion, broadly suggests suboptimal contribution and value addition to the country’s economic performance.
“There is, therefore, a concern that the performance of NDB has been well below expectations and its potential not fully exploited; hence suboptimal contribution to the industrial effort,” the bank also wrote in its annual report. NDB focuses on lending to various industries and agriculture, and has more recently covered the household sector. It is funded by Government, augmented by borrowing from domestic banks and external entities.
NDB is also responsible for professional project/ proposal evaluation, disciplined monitoring of use of resources and business activity, guidance and performance support. BoB however said these aspects are evidently lacking in the case of the NDB, hence the lackluster performance of funded projects, weak loan recovery and a recurrence of financial losses which, ultimately, are borne by the Government.
The bank said chief among the reasons for low achievement by NDB are the weak enforcement of loan recovery and apparent acquiescence by Government in facilitating recurring recapitalisation, not conditioned on demonstrable effective managerial performance and a viable and sustainable recovery strategy.
“In the circumstances, it is clear that a refocus is needed to enable the bank to play a meaningful role in the execution of the industrialisation strategy. This is achievable to the extent that resources continually availed to NDB add to economic expansion and vibrant activity,” BoB announced.
Evidence in this regard, said the bank, should be easily demonstrated by viability of the NDB funded projects and businesses that generate positive returns and are able to pay back loans; facilitating going concern for the bank and less need for recapitalisation to cover for losses. The last time NDB made profit was in 2013, when it made P45 million.
Its troubles began in 2014, when it struck P161 million impairment, driven by a rise in Non-Performing Loans (NPLs). The rise in impairment was because the high risk projects that NDB finances without guarantee or collateral underperformed and the clients were unable to pay NDB. Losses then shot to P87 million.
NDB losses were lower at P48.7 million in 2015, while impairments were at P83 million. In 2016 the bank made P21 .2 million in losses before shooting up significantly to P168.6 in 2017.
CEDA was not spared, in 2018, its total loan book amounted to P1.4 billion, compared to commercial bank business lending (excluding parastatals) of P22 billion. CEDA, according to BoB has assisted more than 6 000 businesses with 57 000 jobs created since its inception.
However, BoB said CEDA’s lending has been relatively unsustainable, as evidenced by high Non-Performing-Loans (NPLs) of 37.6 percent of total loans ratio in 2012, and many foreclosures, about 9.2 percent of total loans in 2012.
This occurs despite the collaboration with business, product and market development and skills development and mentoring institutions, such as Local Enterprises Authority (LEA), intended to enhance viability and prospects for business proposals, according to the banking sector regulator.
“There is, therefore, need to reassess prospects for enhanced contribution by CEDA to industrialisation, particularly in relation to the identified sectors and related value chains. Among the key considerations, in this regard, is the potential for the CEDA set up to be integrated with the cluster industrialisation strategy and the Special Economic Zones.
Along with NDB, there is an option to outsource development and industrialisation funds (especially short-term elements) to commercial banks, where there are better project evaluation, monitoring and loan recovery processes.”
Further, CEDA has for the past four years failed to submit audited financial results to the Auditor General, Pulane Letebele for review.
In her latest report for the year ending 31st March 2018, Letebele said CEDA CEO Thabo Thamane said he is unable to submit the audited accounts for the year under review as the audit for the previous year i.e. 2016/2017, is yet to be finalised. “I am concerned that this is the fourth year running that the Agency has not been able to submit the required accounts for my review,” she said.