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| 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,http://www.dailynews.co.tz, reported by Abduel Elinaza in Arusha
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