The Principal Bank for Development and Agricultural Credit (PDBAC) is facing six main challenges in the coming period, according to chairperson of the bank, Elsayed Elkosayer.
In his first interview since he became the bank’s chairperson, Elkosayer named these challenges as handling non-performing debts worth EGP 4bn, raising the efficiency of assets owned by the bank estimated at EGP 2bn, diversifying the products it offers, developing the technological network, developing the labour force, and curing problems with the bank’s capital base.
What is the bank’s working strategy for the next period?
Our strategy in the next period is based on six pillars, the first of which is handling the non-performing debts farmers owe, which amount to about EGP 4bn.
With regard to this issue, the bank is keen to be flexible and to grant facilities to the farmers who faltered due to circumstances beyond their control. As for the customers who are dragging their feet, although they have the capacity to pay, the bank will do its best to take its dues from them. The fact is that the bank’s money is the depositors’ money so the bank cannot leave it.
We reformed the committees that are negotiating the collection of these debts and supported them with members who are trained in dealing with various parties in order to accelerate the settlement and collection of these debts.
Settlements have been conducted with approximately 3,200 customers over the past three years with total debts amounting to EGP 150m, 85% of which were collected in cash.
In addition, the former PBDAC board reached an agreement to settle one of the outstanding debts, of which EGP 65m will be paid.
We are targeting to decrease the non-performing debts to 15% of the total loan portfolio by the end of 2017, compared to 20% at present.
What is the size of the reserves the bank set aside to cover the non-performing debts?
According to the definition the bank was working through previously, there is no gap now between non-performing debts and the reserves set aside to cover them.
However, we are now studying means to amend our allocation policies to match the definitions of the Central Bank of Egypt (CBE). If we do so, a gap of about EGP 2bn may result.
What about the second pillar?
The second pillar is to raise the efficiency of the assets owned by the bank, whether those are assets the bank obtained from defaulting customers or its own assets, which amount to more than EGP 2bn.
We are classifying these assets now to know which of them the bank needs and which can be dispensed with during the next period. We are looking also for solutions to raise the efficiency of using these assets, whether by selling them or recycling them.
In addition, we have other assets that are rented and unused. We are negotiating now on how to dispense with them.
Some assets are currently disputed over. We are seeking to settle these disputes so as to make them ready for sale. We use highly efficient consultancy firms that work through a level of transparency and commitment with controls in this field. That guarantees that the bank will benefit more from these assets.
Furthermore, the bank owns the Egyptian Company for Agriculture and Rural Development, which is the investment arm of the bank. This company performs trade activities and owns a number of assets. We are targeting to use them optimally.
Moreover, we are seeking to develop this company and have it play a significant role in order to meet farmers’ needs through its branches that are spread across the country along with the bank’s branches.
What about the third pillar you are working on?
We are working on diversifying PBDAC’s banking products, whether for Egyptian farmers or other customers.
Now, we are preparing the bank’s infrastructure as to be able to participate in the CBE’s initiative on financing small- and medium-sized enterprises (SME). In addition, we are targeting to provide new services such as remittances, instant payment of salaries, and collecting the state’s dues through the electronic collection system.
Does the bank have the infrastructure to provide such services?
We have infrastructure that is proper to some extent and are seeking to develop it. Until then, we are targeting to benefit from the expertise of banks that have good experience in these fields, namely the Commercial International Bank (CIB) and the National Bank of Egypt (NBE), in addition to Fawry and e-finance companies.
Developing the technological network of the bank is the fourth pillar in its working strategy during the next period.
A plan was set a while ago to achieve that goal and was supervised by Ahmed Darwish. There is coordination with the CBE and a number of consultancy bodies to search for financing for this plan. The cost of executing this plan is approximately EGP 400m.
What about the fifth pillar?
The fifth pillar is to develop the labour force.
The bank has about 20,000 employees. We need the help of the CBE and consultancy bodies to restructure the labour force, and to separate between responsibilities and specialisations as well as between business sectors and subsidy sectors at the bank.
We are about to cooperate with the Egyptian Banking Institute to study our needs of training, during the coming days, with the personal support of the CBE’s governor.
Although the bank has 20,000 employees, there are too few young employees. In order to be able to strengthen its presence in the market and offer good technology, the bank needs to employ a number of trained employees and experienced workers who are able to help it in achieving that plan.
What about the sixth pillar?
The sixth pillar is to solve the problem in the bank’s capital base. PBDAC’s capital amounts to EGP 1.5bn, but the bank’s losses may reach EGP 5bn by the end of this June.
In order to adhere to the controls of loaning, risks, and governance that the CBE sets, the bank needs to restructure its capital and equity, whether through capital increases by obtaining subordinated loans, or another way.
Here, I would like to assert that this way the bank may not continue playing its role.
What about the bank’s dues at the Ministry of Finance?
The bank’s dues at the Ministry of Finance amount to EGP 3bn. During the short period over which I have assumed responsibility at the bank, I realised the keenness of the prime minister and the ministers of agriculture and finance in giving the bank these dues. This comes within the state’s concern about returning the bank to playing a real role.
We have already obtained about EGP 400m out of these dues. Furthermore, in the coming days we will obtain other dues as a result of cotton subsidies worth about EGP 500m. A meeting with the Ministry of Finance is being prepared to discuss how to recover the rest of the dues very soon.
How will these dues be used? Will the bank’s capital base be supported by them?
This liquidity will be invested in a way that gives returns to the bank and will not be used in supporting the capital base.
What is the size of the bank’s loan portfolio?
The loan portfolio amounts to about EGP 22bn, 30% of which are agriculture loans and the rest were granted to businesses related to animal production, in addition to personal loans and investment loans. This is aside from the bank’s participation in the ”Mashroak” project.
What is the size of the deposits at the bank?
The deposits reach about EGP 36bn, most of which are farmers. The bank has a group of competitive saving schemes such as certificates and passbooks that attract a large segment of these customers.
There was a plan to restructure the bank for which the World Bank allocated $500m. How has this progressed?
Yes, there was a plan to develop and restructure the bank under the supervision of the Dutch Rabobank. However, executing this plan is subject to issuing the law of the bank and putting the bank under the supervision of the CBE.
Restructuring the bank requires financing and financial support. We are looking for sources of financing whether by obtaining a subordinated loan from the CBE, or by activating negotiations with the World Bank, or through the liquidity that will be available as a result of reusing the assets.
What is new with regards to approving the bank’s financial statements for the fiscal year (FY) ending June 2015?
There were some obstacles that have prevented the approval of these statements during the last period. We are discussing with the Accountability State Authority how to overcome these obstacles and have already reached good results with it. I expect these statements to be approved in a month and a half maximum.
Do you regret assuming responsibility for a bank with so many problems and challenges?
Of course not. I am the kind of person who accepts challenge and loves to work in places with challenges. I succeeded and achieved good results at the Industrial Development and Workers Bank of Egypt where I used to be chairperson. I hope to achieve the same success at the PBDAC. However, in order to achieve that, the state and the CBE should support the bank completely.