Q. What is the Bank's current financial position?

A. Healthy. The Bank's balance sheet is strong and the liquidity position continues to improve as a result of increased loan recoveries and additional capitalisation from our shareholders.

Could you elaborate further?

The Bank's asset base currently consists of assets conservatively valued in excess of UAPTA 110 million (equivalent to USD 143 million) of which close to 25% are held in liquid or near liquid form. Approximately 55% of these assets have been financed through shareholders funds which currently exceed UAPTA 60 million (USD 78 million). The Bank's debt/equity ratio, therefore, remains healthy and within the norms for international development banking institutions. 

The Bank is conservative in valuing its assets as was manifested in the significant levels of loan provisions made in 1999. These amounted to UAPTA 15.18 million (USD 19.6 million) compared to UAPTA 2.19 million (USD 2.8 million) made in the previous year. The significant level of loan provisions made in 1999 was intended to reflect the impact of the general economic slowdown in the COMESA sub-region over the last two years.

As regards liquidity, the Bank's position has been substantially augmented by significant loan recoveries in the past year which were in excess of USD 20 million. Equity contribution from the two new members, Egypt and China has further strengthened the liquidity position of the Bank.

How do you explain the figures released in the Bank's 1999 financial statement?

The results reported in 1999 indicated that the Bank had made a significant accounting loss amounting to UAPTA 12.3 million (USD 16 million). A closer scrutiny of the accounts would, however, reveal that the loss is attributable to the significant provisions made in the year against all possible bad loans. 

The magnitude of provisioning in 1999 was a radical departure from previous years when the Bank would make provisions against bad debts over a period of time, typically over 4 to 5 years, depending on the action that was being pursued to turn a problem project around, but without taking into account the net-realisable amount from the loans in question. A review of this practice by Management indicated that it was not sufficiently prudent. Management, therefore, decided to adopt a procedure of providing fully against all possible bad loans based on conservative estimates of their current realisable values and without factoring in prospects for project turn-around as was the case before. 

With the benefit of hindsight, this aggressive provisioning strategy has already started yielding the intended benefits. The Bank can now proceed to foreclose of ailing projects without having to worry of the impact this may have on its financial statements. In certain cases, the Bank may even foreclose and realise sale proceeds in excess of the net book value of the loans which would result in write-backs of the excess provisions. In a sense, our provisioning strategy is meant to complement our portfolio improvement and loan recovery strategies.

Why has the impression that the Bank is facing a Management crisis lingered on?

The controversy created by the suspension and subsequent dismissal of Mr. Martin Ogang was unfortunate. But it was a decision taken by the Boards of Directors and Governors and which we had to abide with.

The Bank, as the financial arm of the COMESA economic arrangement is, however, more important than any one individual. It has the demanding mandate of meeting the economic requirements as a development bank of an area with a population of more than 300 million people. It is a responsibility that we take seriously.

Has your management taken any steps to correct the situation that led to the exit of the former chief executive?

The Bank's corporate governance structure has been strengthened. At the policy organs level, we now have an Audit Committee comprising members of the Board of Directors. At management level, we have established and strengthened the Procurement and Management Committees. These new structures have proved very effective in enhancing levels of accountability and commitment.

Improvements in other areas include an increase in the level of new business, securing of new lines of credit not to mention the Bank's Note Issuance Programme in Lusaka and revamping of the General Capital Increase that saw Egypt and China finally come on board.

The Bank has also engaged a firm of international consultants to review its organisational structure and business processes with a view to streamlining them so as to increase the levels of operational efficiency and effectiveness.

The Bank's loan portfolio and disbursement procedures were, at one point, subject of critical scrutiny. Have these been streamlined? 

The Bank's disbursement procedures have been tested over the years and have proved effective. These procedures are modeled closely along the lines used by other multilateral banking organisations. The one case where this was an exception involved fraudulent collusion between certain internal and external parties. Management has, however, subsequently put in place sufficient safeguards to deter the recurrence of such incidences. These measures include the proactive involvement of our internal audit function.

Do we take it then that the Bank is back on course after last year's turbulence?

Yes. The Bank undertook a forensic investigation that also pointed out lapses in the corporate governance that led to the kind and magnitude of abuses that were revealed. This has led to the strengthening of the corporate structures and governance of the Bank. This, however, is an ongoing exercise and improvements will continue to be made in order to enhance the Bank's ability to deal with future business challenges. The Bank has also continued to grow its portfolio both in size and diversity, a clear indication of management's resolve to forge ahead and grow the institution.

China and Egypt's Membership of the Bank. What are the benefits for the Bank?

Apart from the share subscription, it also signifies a major breakthrough in the Bank's General Capital Expansion programme, particularly on the part of China. We now expect to be able to attract more capital exporting countries into the Bank's membership. In addition, the Bank will now be able to access resources from development partners resident in these member states. Already, the Export Import Bank of China has given the Bank a USD 20.0 million Line of Credit and prospects for enhancement are considerably improved with the membership of China.

But perhaps more importantly, the increased membership is a major vote of confidence in the management of the Bank as well as its future as the main engine for development in the COMESA region. 

Why is the General Capital Increase programme important to the Bank?

Currently, the resource requirements of the COMESA sub-region are significantly higher than the Bank's capacity to satisfy them. The General Capital Increase programme is, therefore, designed to improve the financial base of the Bank to enable it discharge its developmental role more effectively. In addition, the programme is designed to enable the Bank to ultimately access cheap funds on the international money markets using the callable portion of the capital subscribed by the new members.

What is the Bank's current membership and loan portfolio?

The Bank has an authorised share capital of US$540 million out of which USD 300 million has been subscribed. The loan portfolio comprising both projects and trade finance currently exceeds US$100 million. Among priority areas of intervention are agri-business, manufacturing, infrastructure, (energy, telecommunications and transport), tourism and mining.

The Bank's members include, the African Development Bank (ADB), Burundi, China, Comoro, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Malawi, Mauritius, Rwanda, Somalia, Sudan, Uganda, Tanzania, Zambia and Zimbabwe.