CRDB says 'no' to govt guarantee

Dr Kimei
CRDB Bank, one of the biggest banks in the country, has said it will no longer honour government guarantee as the first collateral in lending, especially in the agricultural sector.

The bank made the decision after failure to recover bad loans from the cotton sector due to global financial crisis, despite the government's guarantee.

The bank's Managing Director, Dr Charles Kimei, said experience shows that recovery of debts guaranteed by the government took long and upsets the bank's balance sheet.

"The bank will no longer accept the government guarantee as the first security, instead the borrower in agricultural sector has to provide another form of collateral," Dr Kimei told the CRDB's 17th annual shareholders meeting over the weekend.
CRDB suffered a biggest blow after the agricultural sector borrowers failed to settle debts due to the global financial crisis that started in 2008 and eased up in 2010.

In 2011, for instance, out of 16.5bn/- that was earmarked as bad debts only 710m/- was recovered. Due to bad debts, last year the bank's profit dropped to 48.99bn/- compared to 62.88bn/- of 2010.

One of the shareholder said "if the bank managed to recover only 10 per cent of the impaired loans, we could be speaking another profitability language today.

"Last month, the bank managing Director said the stimulus package it received from the government between 2009 and 2010 was inadequate to clear its balance sheet from bad debts as a result of a non-performing cotton industry in 2008.

 The bank, which is the largest in terms of assets, deposits and loan portfolio, said it issued loans to the cotton sector worth 70bn/- but received only 18bn/-, leaving its books with huge debts.

"The idea behind this move was to enable debtors to repay their loans but the sector is still not performing well," Dr Kimei told reporters last week when presenting the bank's financial results.

Since 2008 cotton production remained at around 150,000 tonnes per year compared to almost 300,000 tonnes produced before the world financial crisis.

In 2011 financial performance, CRDB's pre-tax profit dwindled by 20 per cent to 51bn/- after cancelling 50bn/- worth of bad debts, mostly coming from lending to the cotton sector.

"Despite the shortfalls," Dr Kimei assured shareholders "the bank will continue lending the agricultural sector by putting good credit risk management strategies."

Among the measures include establishing a special department that deals and specialises in agriculture financing. The department will track the world’s commodity prices and crop production trend and other indicators related to farming.

 Also the department seeks to reduce risks exposures in the sector and had been tasked to lower the risks from the current 35 per cent to 30 per cent in short term. "The target is to reduce the risk exposure in agriculture loaning to 25 per cent," Mr Kimei said.

 The AGM approved the bank's strategies including appointing the chairperson and vice-chair of shareholders meeting and three new board members, one representing shareholders with between one and 10 per cent stake and two representing those below one per cent.

 Mr Damian Ruhando and Ms Gattey Marwa retained their positions as chairperson and vice-chair respectively.Another business was to appoint a new external auditing firm where PricewaterhouseCoopers was elected, replacing Deloitte & Touche.
Source: The Daily News,, reported by Abduel Elinaza in Arusha
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