STATE-OWNED agricultural lender Agribank on Monday reported a net profit of US$4,8 million for 2016 after handing over US$26,4 million of its non-performing loans (NPLs) to the Zimbabwe Asset Management Company (Zamco). Zimbabwe Independent business reporter Taurai Mangudhla (TM) on Monday interviewed Agribank CE Sam Malaba (SM, pictured), on the company’s financial performance and strategy with particular focus on NPLs and the recapitalisation of the bank. Below are excerpts:
TM: Your financial report shows 45,2% growth in net interest income for the year under review. What do you attribute this jump to?
SM: You know even the capital TBs (Treasury Bills) or the Zamco TBs are still bringing in interest income and if you look at our book when we transferred these assets to Zamco they were no longer generating income. What we have done is to make them perform by transferring them to Zamco and hence we have got income coming in. So that is the main thing in terms of that growth.
Besides that, although our book looks as if it has gone down, in actual fact there was an incremental lending of over US$11 million. If you have reduced your books by the transfer to Zamco, ideally it should have been one-for-one but the reduction is not one-for-one, it’s actually less. We have offset the transfer of the additional incremental lending so there was real growth in terms of lending and that financial asset held to maturity is actually also earning interest so that’s the main point.
TM: Do you think this is sustainable in the long-term?
SM: We think it’s sustainable. If we look at the mandate going forward, the focus is not only to grow, but to grow with a quality book so we are actually ring-fencing the cash flows in terms of repayment up to the marketing stage so you can actually get the payments.
TM: You mentioned that you have handed over your NPLs to Zamco. How much are we talking about?
SM: We have given to Zamco some US$26,4 million in the year under review.
TM: What was the composition of the NPLs in terms of sectors, what was the biggest contributor?
SM: I think the biggest contributor would have been the agricultural loans. Some of them were historical under government facilities. These were a result of the droughts and farmers were unable to repay. These loans were transferred and we have now restructured, which is why we are saying now that farmers have had a good season, they should repay so that they become bankable again.
TM: Despite handing over US$26,4 million in toxic loans to Zamco, your NPL ratio remains rather high at 14%, what is the reason for this and is management not worried?
SM: Yes, they are at 14%; we want to bring it down to about 5% by year-end.
TM: That is quite an ambition, what is the strategy to bring down your NPL ratio from 14% to 5% within a year?
SM: We have really tightened up our credit and debt recovery, for example, and as I said earlier on, credit and debt recovery is now a separate unit which appraises and approves all applications. We have also said if we are providing inputs to a farmer we will provide the funds directly to the supplier for the inputs. Now we are saying if you want fertiliser we will pay the supplier and all that we give you is the working capital element. If you are paying wages, we give you on a monthly basis so that the money is not used for other things.
TM: During your presentation, you said you stand at US$51 million in terms of capital and you want to reach US$100 million. Have there been indications from government of plans to further capitalise the business?
SM: I think the shareholder will capitalise us and we have no doubt in terms of his support. As I said, he has capitalised us to the tune of US$40 million in the last two years. We will still discuss with the shareholder whether the direction is for him to capitalise us or to allow for a strategic partner to come on board, but definitely for a bank to play a leading role in the agricultural sector we need capital of US$100 million.
Not only that, but we also need to do lease financing even for the farmers, we need to support them in terms of mechanisation and terms of irrigation. All these require medium to long-term funding therefore we need capital of US$100 million to be able to perform our role.
TM: Excuse me for coming back to the issue of capitalisation, but what I am trying to understand is whether or not there have been material discussions around the issue?
SM: Well, look, there has been discussions with the ministers but I don’t want to talk about informal discussions because basically they will have to go to cabinet. I don’t want a situation where someone will then say Agribank said this or that.
TM: You have also brought up the issue of a strategic partner in the capitalisation plan, what is the thinking now, given that it seemed government was more inclined towards going it alone since it stopped talking of potential suitors. What is the situation?
SM: I think the question is always finding the right strategic partner for a bank like Agribank.
TM: What makes an ideal partner?
SM: An ideal partner would be among multilateral business and financial institutions like the African Development Bank (AfDB), the International Finance Corporation (IFC) because if you look at agriculture development banks in the region, they have been capitalised through IFC and AfDB, but we have not yet cleared our arrears as a nation so we can’t access funding from these institutions.
When you are talking about Agribank you don’t look for a private strategic partner, but one who is multilateral so that you can get medium term and long-term financing which is what the agricultural sector requires.