03 Apr 2019
Response to Questions Raised via the Windhoek Observer
There are various ‘concerns’ allegedly raised by some concerned farmers related to Agribank that have been circulating on various social media platforms. In addition, we have been approached by the Windhoek Observer with questions about similar issues to which we have provided detailed response.
1) Why is the bank resorting to black listing farmers on the ITC, thereby crippling them financially and how does this address the bank’s efforts to recover its funds?
Listing is done in compliance with, and within the provisions of, the Credit Bureau Regulations as enforced by the Bank of Namibia to which Agribank is required to adhere like any other credit provider. Credit listing is only done as a mechanism of last resort for clients who repeatedly fail to honour their repayment obligations. The debtor is typically de-listed as soon as they have brought their account up-to-date. It should be pointed out that even retailers black list clients for relatively small credit balances, as do micro-lenders and commercial banks. It is the bank’s experience that clients take their repayment obligations more seriously when listed. It is very unfortunate that the bank is forced to take this step in respect of some of its clients who are in arrears. Clients that cooperate with the bank proactively have no reason to be concerned that they would be listed on ITC. In addition, the bank subscribes to ITC and uses this information to do credit checks as part of the approval process. Thus the importance of complete and accurate information provided to ITC by all credit providers cannot be overemphasised.
2) Agribank launched various initiatives to address land ownership imbalances in the country. Does your current aggressive approach in recovering funds owed from black farmers address this initiative?
We must correct the statement. Firstly, the approach we are following cannot be termed aggressive at all. In fact, the opposite is true and the bank is the most accommodative lending institution in the market. Secondly, the reference to black farmers is misleading as all clients are expected to honour their repayment obligations. The bank does not discriminate. Thirdly, you are right that the bank has put substantial commercial farm-land into the hands of previously disadvantaged Namibians, over 6 million hectares having been placed in such hands since independence through the bank’s financing and developmental objectives. The bank continues to play its role in pursuit of this national objective. In fact the bank is heavily reliant on clients repaying their debt to be able to pursue this objective. Simply put, the bank needs the cash inflows to be able to fund new loans at terms far more beneficial than farmers would otherwise have access to.
3) Why has the bank resorted to debt takeovers when black farmers fail to pay what is due and what criteria are you using to identify which debt can be taken over?
If the question is about clients who move their loans from commercial banks to Agribank, the normal credit assessment criteria applies. Many clients looking to move over to Agribank do so because of more favourable loan terms than those offered by commercial banks. Funding clients who wish to move over from commercial banks is not a new practice for the bank as the debt take-over product has been in existence for many years.
4) Farmers are raising concern that the recruitment of three white executives in the bank has worsened relations with them because of the handling of their issue and also allegations these are former colleagues of the current CEO?
It is easy to twist facts. The truth is simple. Firstly, the bank does not follow a policy of racial discrimination in its recruitment practices. Secondly, the CEO does not appoint executives in the bank. These are appointed by the Board following a rigorous recruitment process that delivers the most suitable people for each role. Thirdly, only two of the three people worked previously for the same employer as the CEO. They applied for positions that were advertised, just like others who responded to such advertisements. Fourthly, the credentials of these employees would clearly demonstrate that they are highly skilled, qualified and experienced professionals who are best suited for the roles they were appointed into by the Board. The bank needs the best people to escape the damage of many years; and for it to be sustainable. Fifthly, it is false to assert that these executives have worsened relations with the concerned farmers. The bank’s collections strategy was developed, approved and implemented well before any of these employees joined the bank; and none of these executives is at the forefront of collections. They cannot be made scape-goats. One of these employees only joined the bank in March 2019. How would he have contributed to the worsening of relations with any of the concerned farmers, for example? The bank has, indeed, begun to realise value from the recruitment of these professionals as evidenced in the progress it is making on various critical fronts. Sixthly, the allegation conveniently ignores black executives at the bank and creates an impression of racial imbalance. The CEO is black. The executive for credit is black. The executive for marketing and customer strategy is black. The executive for human resources is a black woman. There are four other people who, though not at executive level by role, have served continuously on the bank’s executive committee over the past two years – something implemented by the CEO. All these people are black – two men and two women. The bank introduced a Women Leadership Development Programme, at the initiation of the CEO and approval by the Board. Over the next three years, women 3 employees will have an opportunity to benefit from a mix of formal training at tertiary education institutions, supervisory and management development training, exposure and attachments at similar institutions and other related interventions. The sole objective of this programme is to develop women leaders in the business so that they are ready for leadership roles at different levels in the bank and in the broader economy. There is a committed budget behind this programme.
5) Of what results has the bank achieved by summoning farmers through the courts?
Instituting legal proceedings against clients is always a measure of last resort. This is only done after a significant time period has elapsed without any positive response from the client or when the client does not honour amended repayment terms or restructuring of the debt that take into account the farmer’s circumstances. Most clients who have reached legal action stage have either settled or significantly reduced their arrears, whilst making firm arrangements with the bank to settle the remaining arrears. Even at that late stage, the bank can and will accommodate clients to ensure that farm land is not unnecessarily forfeited to service their debt.
We have seen, and continue to see, very positive results from these initiatives in improving the bank’s non-performing loan book. Even with the improvement in collections, however, the amounts being collected at this stage are still not sufficient to meet the demand from clients. We could assist more people if the collections were higher but we see this as a journey that has yet to fully unfold. We will continue to focus on ensuring that we improve our collections processes so that we can fund more players across the agricultural value-chain. As we do so, we will continue to be accommodative to our clients who come forth to make the necessary repayment arrangements. We wish to re-iterate that it is not the bank’s primary objective to repossess farms. That is a last resort when all efforts have failed. This outlook informs our approach.
6) What is the mandate of the bank and what distinguishes the bank from other commercial banks in the country?
The mandate of the bank is to finance agriculture. We are a development financing institution and not a commercial bank. We are further differentiated from a commercial bank in that we are not a deposit taking institution, thus we don’t have the same sources of funding as a commercial bank has access to, to grow its loan book. The bank’s funding of its loan book is done through a combination of government funding, repayments from our clients and external debt. External debt however is expensive and is typically higher than our average lending rates to clients. Our interest rates are lower than market rates. Our grace periods tend to be better than those offered by commercial banks. Our payment frequency is more favourable than options offered by commercial banks. But just because we are a development financing institution does not mean clients do not have to honour their loan commitments. The bank is specifically not mandated to write-off debt on arrear clients and can only do so after all legal processes have been 4 thoroughly exhausted. We also provide repayment flexibility and are more accommodating than is the case with commercial banks. No commercial bank will wait for so long before they list a client on a credit bureau or resort to legal proceedings which might entail the selling of a client’s farm. Our mandate is also to be inclusive. We do this by providing loans to communal farmers who might not have fixed property to offer as collateral. In mid-2017, we introduced a no-collateral loan product for communal farmers which has to-date disbursed over N$55 million in loans. We also provide funding to farmers resettled on commercial farmland by the government without requiring collateral. We do this to catalyse the development of agriculture country-wide. In addition, the bank offers free training and mentorship services to farmers throughout the country, which commercial banks do not do. That’s our mandate.
7) The bank has hiked its interest rates twice since the appointment of the current CEO. What is the rationale behind this and are you aware of the impact its having on farmers loan repayments?
Interest rate adjustments need to be de-linked from the CEO. They are simply a business imperative. Needless to say that interest rate increases can only be implemented on approval of the Board following a thorough motivation from management supported by impact analysis. The last two rate adjustments were not the first time the bank has increased interest rates. This has happened in the past and will happen in future. To finance the needs of clients, the bank needs money. Because of the poor repayment record of the bank’s clients generally, inflows from existing clients are not sufficient to meet the demand. This means that the bank has to borrow to partly fund new loans. Such borrowing comes at a cost that is market related. The bank needs to gradually raise its interest rates to reflect that cost of funding. If the repayments were reasonable, none of this would likely be necessary. In the bank’s last audited financial report, the Auditor-General specifically advised the bank to adjust its interest rates to reflect its cost of funding. No institution can sustainably borrow at high interest rates to lend at low interest rates. That’s the rationale.
8) Does Agribank conduct any on-ground assessment at the request of farmers struggling to repay their loans when requested and how many have been conducted this year and last year?
It is not financially feasible for the bank to have its officials drive around the country visiting every farm. Assessments cannot be used as an excuse for clients not to make repayment arrangements. The farmer is in charge of his farming enterprise. What we certainly do is pre-approval inspections and where necessary post-disbursement inspections.
9) The last time you spoke about a review process for the Affirmative loan scheme. Who is going to make up the panel and are farmers going to be represented?
The Ministry of Agriculture is the custodian of the Affirmative Action Loan Scheme (AALS), which was set up by Cabinet. The bank’s role is to advance loans to applicants in line with the requirements of the scheme. What we have consistently stated is that this scheme needs review – having been established in 1992. Much has changed since then. For one, farm prices have gone up substantially. The deposit requirement on this scheme, for example, has become unaffordable to many applicants. There are other elements of the scheme which the bank believes require review. We have proposed the need for review to the custodian of the scheme. So any questions about participation in the review of the scheme are best directed to the relevant Ministry.
10) What exactly is being reviewed and what are the problems?
In the bank’s assessment, it is the qualifying criteria that require review. There may be other perspectives which other stakeholders are free to bring to the attention of the Ministry of Agriculture.
11) The country is currently faced with a drought. What are the bank’s plans to help farmers?
The bank is closely monitoring developments in weather patterns and vegetation conditions and has been considering relevant options. These will be announced at the appropriate time in due course.
Chief Executive Officer
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Loans are granted against security of fixed property, investment or any other acceptable form of security (fixed deposits, investments and surrendering value of policies). read more
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