Agricultural Bank needs cheap funds to lend

THE Agricultural Bank of Namibia is struggling to find cheap funds to allow it to grant more loans despite posting a profit for the 2004-05 financial year, “The situation that the Bank had to borrow more and more short-term funding at high interest rates in the local market to on-lend long term, has been addressed in so far that until long-term funds can be sourced at rates that allow the Bank a reasonable margin to maintain and improve profitability, long-term lending by the Bank shall be limited,” says the annual report of Board Chairman Hans-Gunther Stier.

At the time of the Auditor General’s audit, the loan book stood at N$196,4 million. The latest financial statements presented to Parliament at the end of last week indicate a turnaround in financial performance from losses of N$24 million in the previous financial year to a profit of N$9,1 million for the year ending March 2005.While Auditor General Junias Kandjeke expressed concern about the bank’s liquidity last year, this time around he said he was satisfied that the bank would not struggle to continue as a going concern.However, the continuation of profitable operations by the bank and its ability to operate as a going concern would depend on the margin on borrowed funds advanced to customers, the ability to obtain cheap funds for loans, Government’s willingness to subsidise projects of a sub-economic nature and increased efforts by the bank to avoid unnecessary losses due to irrecoverable debts.Despite the profit, Kandjeke said he was seriously concerned that Agribank’s current liabilities exceeded its assets by N$190 million, compared to N$116 million in the previous financial year.Responding to the concerns expressed in the audit report, Stier told The Namibian yesterday that the nature of Agribank’s operations would always result in a situation where its liabilities exceeded its assets, because it had virtually no assets considering that it was only a small percentage of its loan book which for the most part would only be repaid in 25 years.”At the end of the day we want to make sure we cover our costs and make profit,” he said.Stier said it had to be borne in mind that the bank was only advancing funds and that very little was invested with it, and when so, mostly in the short term.He said the bank was still on the lookout to loan more funds, but at the moment was able to grant loans from its own cash flow and a N$140 million loan from Government.”Land reform must go on but we can’t do any major expansions because we are restricted to our own cash flow and borrowing funds in the open market,” said Stier.Profits before provision for losses and advances for 2005 are N$39,1 million compared to N$65 million in 2004.This decrease resulted from lower net interest margins earned of N$18 million and an increase in general administrative expenses of N$8 million.According to the bank, the decrease in interest income is due to interest no longer being charged on bad and doubtful accounts and accounts where the interest accrued already exceeds the capital advances.”From the trend in net interest earned, it is evident that the Bank will have to find cheaper long-term funds, either by way of equity or by way of concessional loans,” said Stier in his report.The bank said there had been very little movement on the Affirmative Action Loan Scheme since October 2004.This was attributed in part to a moratorium on Government guarantees, which was later lifted.However, because of liquidity and facility constraints, the Bank had been constrained in granting loans under the scheme.The bank said it was working on a funding strategy to continue lending.But the bank has sent out a strong warning that it will no longer be advancing loans unless it is satisfied that they are sustainable and affordable.No longer will the Government guarantee be a decisive factor as to whether a loan is granted or not.The same principle will apply for major investments in agricultural projects.”As it turns out, when major investments fail, Agribank often is saddled with debts not necessarily of their own doing,” said Stier.The latest financial statements presented to Parliament at the end of last week indicate a turnaround in financial performance from losses of N$24 million in the previous financial year to a profit of N$9,1 million for the year ending March 2005.While Auditor General Junias Kandjeke expressed concern about the bank’s liquidity last year, this time around he said he was satisfied that the bank would not struggle to continue as a going concern.However, the continuation of profitable operations by the bank and its ability to operate as a going concern would depend on the margin on borrowed funds advanced to customers, the ability to obtain cheap funds for loans, Government’s willingness to subsidise projects of a sub-economic nature and increased efforts by the bank to avoid unnecessary losses due to irrecoverable debts.Despite the profit, Kandjeke said he was seriously concerned that Agribank’s current liabilities exceeded its assets by N$190 million, compared to N$116 million in the previous financial year.Responding to the concerns expressed in the audit report, Stier told The Namibian yesterday that the nature of Agribank’s operations would always result in a situation where its liabilities exceeded its assets, because it had virtually no assets considering that it was only a small percentage of its loan book which for the most part would only be repaid in 25 years.”At the end of the day we want to make sure we cover our costs and make profit,” he said.Stier said it had to be borne in mind that the bank was only advancing funds and that very little was invested with it, and when so, mostly in the short term.He said the bank was still on the lookout to loan more funds, but at the moment was able to grant loans from its own cash flow and a N$140 million loan from Government.”Land reform must go on but we can’t do any major expansions because we are restricted to our own cash flow and borrowing funds in the open market,” said Stier.Profits before provision for losses and advances for 2005 are N$39,1 million compared to N$65 million in 2004.This decrease resulted from lower net interest margins earned of N$18 million and an increase in general administrative expenses of N$8 million.According to the bank, the decrease in interest income is due to interest no longer being charged on bad and doubtful accounts and accounts where the interest accrued already exceeds the capital advances.”From the trend in net interest earned, it is evident that the Bank will have to find cheaper long-term funds, either by way of equity or by way of concessional loans,” said Stier in his report.The bank said there had been very little movement on the Affirmative Action Loan Scheme since October 2004.This was attributed in part to a moratorium on Government guarantees, which was later lifted.However, because of liquidity and facility constraints, the Bank had been constrained in granting loans under the scheme.The bank said it was working on a funding strategy to continue lending.But the bank has sent out a strong warning that it will no longer be advancing loans unless it is satisfied that they are sustainable and affordable.No longer will the Government guarantee be a decisive factor as to whether a loan is granted or not.The same principle will apply for major investments in agricultural projects.”As it turns out, when major investments fail, Agribank often is saddled with debts not necessarily of their own doing,” said Stier.

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