• 66 companies currently handed over to company lawyers
• Businesses complain of underfunding
There are currently 66 companies tangled in a legal web with the Development Bank of Namibia (DBN) for defaulting in paying their dues after being granted loans to fund their business activities. However, some companies facing legal challenges to settle their outstanding loans are struggling financially and are not in a position to service the loans.
Some of the companies are said to be blaming DBN for their poor performance, saying their business proposals were underfunded, while access to markets and a lack of guidance also featured among the list of reasons cited for business failure, which subsequently led to the inability to service DBN loans. “Currently, we have 66 clients handed over to the lawyers for collection, which excludes those handed over in the prior years and where agreements have been reached. All these borrowers were financed by the bank at one stage during the bank’s 11 years of operation,” revealed DBN CEO, Martin Inkumbi, in response to questions from The Patriot yesterday.
Some of the cases that were this week on the High Court roll involving DBN and companies that were granted loans but failed to pay back include: DBN/E-Smith’s Concrete Industries CC; DBN/Makakata Stone Processing Close Corporation; DBN/Sepa Investments CC and others; and DBN/Luqi Trading CC and others. Regarding the recovery measures that DBN adopts before deciding to file a civil case to recover disbursed loans, Inkumbi said the bank normally identifies the challenges that the business faces, and tries to come up with an agreement to assist the client to restructure the loan – a decision which will be based on facts available to the bank and whether there is merit to restructuring the loan or not.
“Should all avenues fail to rehabilitate the loan accounts, the bank will take the last option to list the client and sureties on ITC (as per legislation) and proceed to obtain legal judgment against all,” he said. Namibia Chamber of Commerce and Industry (NCCI) CEO Tarah Shaanika said the chamber has in the past received requests from some of its members to assist them in finding a solution to settle their loans with DBN after they hit a brick wall. He said NCCI would normally assist the members by giving advice and helping them to access markets in order to sell their goods and services to generate an income to pay their loans. With a membership base of more than 2 500, Shaanika said some of the NCCI members who had trouble servicing their loans complained that DBN underfunded their projects, hence, they struggled to successfully implement their initial business proposals.
“In most cases, an entrepreneur would submit a proposal indicating that his business will need a certain number of equipment but DBN will only fund a portion of the requested amount. For example, an entrepreneur will request funding for three trucks, but then DBN ends up providing funding for one truck only. Clearly, this person’s business will suffocate in future due to underfunding,” lamented Shaanika.
Shaanika also had something to say about entrepreneurs who are in most cases afraid of failing and therefore wait until the last minute before seeking help, which is in most cases will be too late. “We have this culture in Namibia where entrepreneurs are ashamed of failure, forgetting that failure in business can be used as a learning curve to do better next time. Hence, our entrepreneurs must seek help when things are tough so that they can get help before they fail completely,” Shaanika said. Shaanika said NCCI will continue providing guidance to entrepreneurs to help them excel as well as help them to access markets.
“In most cases, you have big companies importing goods simply because they do not know that there are local companies offering the same goods, as NCCI we try to provide such links to our members,” he said. He also welcomed DBN’s decision to stop funding SMEs, saying the bank would achieve more by having a focal point while SME Bank focuses on smaller businesses. In recent years, the number of defaulters has been on the rise, a situation that prompted the bank to set up a special unit to help contain increasing non-performing loans in 2013. He said the unit has done well to improve the collection of loan arrears since its commencement.
“The bank is in the process to further improving the monitoring of clients’ businesses with a Senior Manager: Post Loan Monitoring being appointed to monitor and provide support to clients in difficulties,” he said. He further added that the bank has a new unit, the “Client Support Unit” that arranges mentorship and business coaching for the entrepreneurs through third parties and where clients have difficulties with business operations. Figures provided by DBN indicate that non-performing loans and impairments ratios are at 9.37 percent and 4.25 percent, respectively, and are within the maximum threshold of 15 percent and 6 percent, respectively, as set by the Association of Development Finance Institutions – which DBN uses as a benchmark. The bank’s loan and investment book stood at around N$4 billion as at 31 March 2016. In 2013, DBN’s loan impairment ratio stood at 7.6 percent – well above the 6 percent benchmark of the Association of African Development Finance Institutions (AADFI).
“The bank managed to reduce the impairment ratio to 4.25 percent, as at 31 March 2016, and this level compared well with the threshold of 6 percent of the AADFI. The DBN had set for itself a stricter maximum threshold level of 5 percent, which is below the AADFI threshold,” Inkumbi noted. Since stopping the consideration of loan applications from small and medium enterprises (SMEs) last year, Inkumbi said, the bank has now been able to focus on the larger scale infrastructure and industrial projects in manufacturing, tourism, transport and logistics sectors.
“The bank would now be able to support the Government’s objectives, as outlined under national developments plans, Growth at Home Strategy and Harambee Prosperity Plan,” he pointed out. Asked how the decision not to consider SMEs affected the operations of the bank, Inkumbi said: “To provide quality service to SMEs, the institution needs to be specifically setup with that focus. Therefore, the shareholders’ decision to restrict DBN to larger-scale industrial and infrastructure projects in the country has been a welcome move as this will help DBN to reposition itself in the market and be in a better position to support large-scale infrastructure and development projects.”
Commenting on the ongoing court cases in which DBN is challenging loan defaulters, Inkumbi pointed out that the court route is a normal banking practice in the banking industry should a client not keep to its arrangements and that the bank has the avenue to take defaulters to court to recover its debt.
He, however, indicated that: “This [court route] is, however, a very last resort, after several attempts to reach repayment arrangements with the borrower. DBN’s priority is to sustain business operations and not to close them. The bank is very flexible and exercises patience before resorting to legal collection.” Regarding queries about the total amount owed by defaulters that are currently facing court challenges, Inkumbi said: “The amount varies on a monthly basis, which is based on what amounts are recovered and settlement agreements reached as well as new accounts being handed over to the lawyers.”