June 8, 2008

Development bank braces for restructure

Sai's Comment: 7 June 2008
- Chaudhry's directive to FDB reminds me of a former NZ Finance Minister, Robert Muldoon. I would therefore not be surprised if the result of such interventionist approach will be the same-disaster! Economically, it does not make sense to direct FDB to concentrate on one sector. In fact, FDB will not survive unless it has a diverse portfolio of loans. The market in Fiji is small and already competitive. No wonder, loans applications have reduced both in volume and size. Otherwise, government has to make available some type of ongoing support or subsidy thereby further raising on tax payers. Chaudhry and his lot should not be making such drastic changes to FDB's policies as they are merely INTERIM government. The sooner they're gone come the elctions the better it will be for FDB and its customers.

Policy shift forces FDB to cut costs
www.fijilive.com - 08 JUN 2008
The Fiji Development Bank says it will need to cut its operating costs to keep its margins.This comes as its commercial loan books begin to shrink leading to reduced income following a government directive to change its lending focus, away from commercial to resource based, manufacturing and the micro loans sectors.FDB chief executive officer Tukana Bovoro said if the bank was unable to cut costs then the Government would be required somewhere along the line, perhaps in a couple of years to start putting capital in to plug possible losses.However, plans are now being put in place to ensure that this does not happen and this includes realigning staff needs to the new structure as part of the bank's cost-cutting measures.On how much FDB would lose because it has stopped lending to commercial customers, Bovoro said he could not really quantify that."The fact is that as our commercial loan books begin to dwindle, income will begin to be reduced accordingly,” he said.“Really the option for the bank is to reduce its costs so that the margins are still there.”Early this year, a government directive was given to the state-owned FDB to cut down its commercial and home lending and expand its agricultural loan portfolio.However, Bovoro indicated that the FDB's initial target over three years, was to increase loans to what it then termed as the Agriculture & Development Finance Sector to 50 per cent of the bank's total growth portfolio.“So the directive not only reinforced the direction the bank was heading but also clearly articulated what the FDB needed to achieve the interim Government's wishes,” he said.FDB had set itself pretty tough targets in trying to change its portfolio mix over the next three years, however, given the new direction, and that not much growth is expected out of its commercial book, the desired ratio of 60 per cent in focus sectors and 40 per cent in the non focus sectors, may now be possible, he added.FDB's initial intention was to go into the agricultural sector but with the support of its commercial books, which Bovoro said were very important in enabling the bank to refocus its attention.“The danger here is that we no longer have the steady income (from the commercial loans) required to steady the volatile nature on lending to the resource-based sectors,” he said.“That is the challenge the bank has and management and the board are already in discussions on how this is to be addressed.”He said the bank would look at providing loans to different sectors in the agricultural industry including dairy, beef, agricultural crops, coconuts and bio fuels.Given the increased prices in imported food and milk product, this is an opportune time for the bank to enlarge its portfolio in these sectors, however this must be approached with some caution given the associated risks, he added.“It must be remembered that FDB’s new focus sectors are volatile, very susceptible to environmental factors like the weather apart from the normal business risks like markets and so on,” Bovoro said.However, at the end of the day, the Government owns this bank, and the bank will articulate and implement government’s policy directives, Bovoro pointed out.On how much capital the Government gave the FDB every year, Bovoro clarified that government has not given the bank any capital for some time."Government provides us with interest subsidies that enable the bank provide subsidised loans to the agriculture and other sectors determined by government,” he said.In the last two years, Government subsidies have been in the range of around $3.7 million.“I think that it is important to note that even without Government subsidies the bank has been able to operate on a sustainable level, and this is a positive note about FDB’s operations to date,” Bovoro said.“The positive thing about this is that it places the bank in a stronger position to begin to do what is has been tasked to do now.“However, going forward, the challenge for the board and management will be how to continue in the same manner without depending on Government subsidies for its bottom line.”

Development bank braces for restructure
From July this year, the Fiji Development Bank will begin changes to the structure of the bank, rewriting its policies and repositioning its staff as part of a move to refocus its attention on agricultural lending. Interim Finance Minister Mahendra Chaudhry in January had given a directive to the state owned FDB to cease all corporate and housing lending and focus on agriculture. The directive was heavily criticized by industry observers who said the bank must be allowed to maintain a diversified loans portfolio if it was to survive Fiji’s very competitive banking industry. Four months on, the FDB chief executive officer Tukana Bovoro said that in compliance with the minister's directive, the bank has stopped its lending in commercial lending areas. But he also pointed out that very little business is coming in now for the bank as a whole. "The small loans are still coming through. But the level of loan applications has really gone down." On its lending to the agricultural sector, Bovoro said it was too early to judge." The first thing that we have done now is restructure the organisation.“ We have to do that because when we started off we were building an organisation that was going towards obtaining a retail banking license." But we have now been told to change direction, and concentrate on this - resource based industries, manufacturing and micro loans." So apart from changing the structure of the bank, we have got to rewrite our policies and procedures and reposition our people.“ We will go into that from July 1. That is when the structure will be in place, staff place in their new roles and the bank's new KPI kicks in."Bovoro said that in order for the bank to really get in there (agricultural sector) it needed to redevelop policies and procedures and for certain areas of the business, then to market these products into those sectors. “That does not happen overnight,” he said." So we are developing our marketing plans and when things are in place, we are going to roll the people out to do those things. So it is a big shift in the way we are doing things." He said the bank will have to work with other stakeholders including agriculture, fisheries, forests, the dairy industry, the Fiji Meat Industry board, agro marketing "to find out what else we can do together to push the production of those sectors". Meanwhile, this week the Bank Employees Union agreed on the voluntary redundancy package offered by the FDB.

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