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The period 2012 is indeed a forgettable one for the land bank headquartered in Harare. Agribank posted a loss of US$5,6 million this last year compared to US$0,3 million in 2011.
The assertion that Agribank is more profitable when it is closed than when operating is gathering momentum due to these losses.
The current loss is attributed mainly to impairment charges, which reflect loan exposure.
This means that the risk management policy of the institution requires an urgent revision, as it seems to be divergent with the tenets of Basel II Accord.
A concentration risk exposure on their loan book with 41 percent of loans going towards agriculture with the second recipient in loan allocation being manufacturing regardless of it being exceeded by 13 percent margin.
Whether the bank is compelled to lend such a significant sum to agriculture because of its mandate or it’s a strategy remains a mystery.
Agriculture is one of the most overlooked sectors by the banking sector in Zimbabwe but Agribank defied such odds to allocate 41 percent to the sector.
The major beneficiary of loan allocation in this market has been distribution and this isn’t by default knowing well that an economy with a current account deficit exceeding 25 percent of GDP runs the risk of being a cash till economy of the outside world.
An average loan deposit ratio of 102 percent against an unofficial non-performing loans ratio of 13 percent was meant to make provisions for a significant loan loss provisions.
It could be interesting to know if it is Government policy, as a major shareholder, to entertain such a loan book given the bank’s balance sheet size of US$128 million against minimum capital requirements of US$100 million.
With such a loan deposit ratio outside the normal market average, it worries much to see impaired charges constricting on interest income.
The farmer’s bank has to reform or else it will continue harvesting of thorns.
Staff costs are disproportionately high with non-cash expenses such as depreciation visible on the income statement.
It is a headache for every bank to control such costs with current jobs data in the country poised to worsen as corporates are struggling to contain the staffing costs inspite of the depressed salary levels in comparison to those prevailing on the international jobs market.
It will be quite interesting to rate Mr Sij Biyam, the current board chairman, and his team on the latest financial results.
The verdict could be an inefficient majority shareholder is more of a threat ahead of management skills which is a unique feature of today’s corporate rating.
Like many parastatals in the country, the state of Agribank reinforces the call to either commercialise or privatise the institution.
If it was a private bank, there was every reason to panic as the asset book needs a restructuring without much interest on their seemingly healthy cash flow statement.
However, to secure an investor who will commit funds to such an unattractive balance sheet calls for both patience and realism.
Today’s investor is so exposed that a dollar invested in a dollarised-cum-illiquid market is not easy to recoup compared to an environment where monetary and fiscal policies are allowed to manoeuvre.
The difference between Agribank and other parastatals is that it is a bank, which relies on investors’ deposits hence it is a sensitive entity to leave to the whims and impulses of Government performance.
In order to attract a meaningful investor, corporate governance measures have to be strengthened where inspite of the Government being the majority shareholder, it has to leave major decisions to a professional and independent board.
Elsewhere, NMB and Barclays announced their results amid hopes of improved performances going forward, while recognising the threat posed by the MOU in terms of ploughing into their profitability.
NMB felt much safer as its approach of targeting high net worth individuals implied a smaller percentage of accounts that hold below US$800, which are exempted from bank charges.
Attributable profits were up 67 percent to US$7,6 million, non-performing loans at 15 percent with capital adequacy at 15,4 percent.
Barclays Bank insists on maintaining its conservative approach with its chief executive, George Guvamatanga, throwing NPL ratio at around 1 percent while displaying remorse on the uncomfortable NPL average for the entire banking sector.
- Christopher Takunda Mugaga is an economist. He is the Head of Research at Econometer Global Capital, a regional finance and economics research firm. He can be contacted on: [email protected] or +263 772 340 353 / +263 776 266 062
Online Reporter