Agribank arrears exceed international benchmark

Jo-Maré Duddy



Loans in arrears at Agribank at the end of June 2018 totalled N$618 million or nearly 22.1% of its entire loan book, well above the international benchmark of 15% for development finance institutions (DFIs).

Agribank chief executive Sakaria Nghikembua released these figures during his presentation at the second national land conference on Tuesday. At the end of June, Agribank's total loan book was N$2.8 billion.

The bank's Affirmative Action Loan Scheme (AALS) arrears amounted to nearly N$92.6 million or 26% of the total loan book. Arrears related to the Post Settlement Support Fund (PSSF) stood at N$13.4 million, representing nearly 21.2% of the total loan book.

Nghikembua said for Agribank to continue delivering on its mandate and operate sustainably, beneficiaries of loans must honour their financial obligations to the bank. “Not paying denies others the opportunity to receive loans and will result in the collapse of the institution,” he said.



Support fund

At the rate at which Agribank supports resettled farmers through its PSSF and based on investment performance, the fund has three years at the most before it runs dry. Nghikembua said unless additional money is pumped into the PSSF, it will be “depleted latest by year 2021”.

The revolving fund started off with N$60 million after Agribank and the ministry of land reform co-financed it in February 2009. Since then, it has grown through its investment performance, Nghikembua said.

Farmers can borrow a maximum of N$200 000. To qualify they need an allotment letter, pre-settlement training and set products for which the loan will be used.

According to the CEO, the amount disbursed to 544 resettlement farmers at the end of June this year totalled N$72 million, while the loan book stood at N$63.3 million.

One of the challenges faced by the PSSF is generally low productivity levels by resettlement farmers, Nghikembau said. This affects their loan repayment performance.



AALS

Agribank has approved N$777 million under the AALS since 1992. At the end of June, the total loan book amounted to N$356.4 million.

According to Nghikembua, the 10% deposit requirement is too high given the increase in farm prices over the years.

Another hampering factor is the requirement that beneficiaries must be migrating from communal farms. This restricts the previously disadvantaged who want to start farming or who are leasing in communal land, he said.

The unproductive use of farmland also poses a challenge to the AALS, Nghikembua said. Farms are kept as a “lifestyle asset and not as a business enterprise”.

AALS beneficiaries can only sell their farms after 10 years from the time of purchase. This allows the inefficient utilisation of farmland to continue, he said.

Funding

Government has been Agribank's principal funder, Nghikembua said. “Treasury transfers to Agribank have contracted in recent years, in line with fiscal consolidation. Arrears and lower treasury transfers have impacted the bank's liquidity, adversely impacting delivery on mandate,” he added.

Figures presented at the conference showed that from 2008/9 to 2015/16, government funded Agribank to the tune of nearly N$1.14 billion in total, or an average of N$142.2 million per year.

From 2016/17 to 2018/19, government support totalled N$60 million or an average of N$20 million per year.

For Agribank to fully attain its potential, it requires consistent funding at sufficient levels from government and strategic stakeholders, Nghikembua said.



Land prices

According to Nghikembua “steep” increases in farmland prices have been evident since 2010. The price of farmland bought by government has been rising above the average market price of farms per hectare, he added.

“This market trend partly explains the skewed distribution and ownership of commercial farm land,” according to Nghikembua.

This also contributed to the low farming productivity, as farmers have limited access to additional credit for working capital and infrastructure after purchasing land.

Nghikembua said farmland prices are “unjustifiably high and not aligned with market trends”, adding that the farmland market is “highly distorted”.

“One could argue that the farmland market is seized by market distortion and speculative behaviour, hence farmland affordability is increasingly eroding,” he said.