AGRIBANK will soon cut its branch network by 25% and lay-off staff in a move to lower costs, CEO Sam Malaba has said.
He says the move to cut branches and lower the bank’s staff complement has been necessitated by low business activity and the need to stay afloat.
The bank’s operating expenses for the year ending December 31 2009 was US$9,23 million.
“The bank has embarked on a branch rationalisation exercise which has so far resulted in a reduction in the number of branches from 54 to 50,” said Malaba in an interview with businessdigest on Wednesday.
“We intend to remain with 40 branches. We are targeting loss making branches. Further reductions will be done on a gradual basis. Consideration for closure will be influenced by lack of business activity, connectivity challenges and branches not owned by the bank.”
The bank, Malaba says, has found an equity partner, but declines to name the partner.
He said: “The bank, after discussions with potential strategic partners will make proposals to the shareholder and therefore we are not in a position to reveal details.”
Banks are racing to raise capital through rights issues and private placements in order to meet working capital requirements.
Malaba said the bank did not suffer any write offs last year.
“The bank had however provided for doubtful debts to the tune of US$111 063. The loans provided for are fully secured and the bank can realise value from the security in the event that all other recoverable efforts do not materialise. The bank is confident that it will recover,” he said
Agribank’s average provision for bad and doubtful debts between 2001 and 2006 was about 18,4%, a development Malaba says is in line with provisions by other banks. Between 2007 and 2009, the provision was 3,9% mainly due to the hyperinflationary environment.
Asked to comment on allegations that politicians accounted for the bulk of non performing loans, Malaba said: “The perception that politicians are looting the bank was not correct. Very few politicians are on the bank’s book and those borrowing pay back like any other farmer. No loans were written off for political reasons and that is why the provisions for bad and doubtful debts are not high.”
He said the bank’s “continuous” poor performance was a result of poor working capital from the onset.
Malaba says the bank was never adequately capitalised since 1999 when it was changed from the Agricultural Finance Corporation to Agribank.
“Under-capitalisation of the bank means that it will not have liquidity to underwrite meaningful business and thus generate positive earnings,” Malaba said.
Malaba said the placing of the bank on the US sanctions list had seen its South African account being frozen.
“Initially the bank’s Nostro Accounts were frozen by a South African bank for about a year and this affected our foreign currency account holders who wanted to utilise their foreign currency to purchase inputs and fertilisers for their farming programmes. We cannot hold US dollar denominated Nostro Accounts with any international bank,” he said.