Bank to engage with Futuregrowth on loan decision

Johannesburg - The Development Bank of Southern Africa (DBSA) was not dismissive of Futuregrowth’s concerns about state-owned enterprises (SOEs) and had chosen to engage the fund manager, chief executive Patrick Dlamini said yesterday.

Futuregrowth said last month that it would suspend loans to a handful of SOEs, including DBSA, citing concerns about governance.

“We have had engagements with Futuregrowth. We needed to understand where they are coming from,” Dlamini said.

He said Futuregrowth’s move was not informed by individual engagements with the SOEs. Instead, it was based on the fund manager’s “gut feeling” and observation.

Dlamini was speaking shortly after the DBSA released results for the year to March 31, in which the bank reported that total infrastructure support amounted to R28bn, up from R21.4bn in the prior year.

DBSA increased disbursements by 32 percent to R17.1bn for a total of 74 projects. The bulk of the disbursements (R7.5bn) went to metropolitan municipalities, economic infrastructure sector (R4.9bn) and projects outside South Africa (R3.5bn). Energy accounted for 55 percent of the disbursements.

Dlamini said DBSA had a pipeline of 10 projects valued at R153bn, with energy and transport sectors dominating the bank’s loan book.

DBSA acting chief financial officer Dumisa Hlatshwayo said that non-performing debt as a percentage of the total loan book decreased from the previous 5.1 percent to 3.7 percent, which is below the bank’s self-imposed target of 6 percent.

DBSA’s sustainable earnings improved to R1.4bn from R805m in the prior year, while net profit increased from the previous R1.2bn to R2.6bn.

The bank’s total assets grew by 16 percent to R82bn, with the total development asset book increasing by 22 percent to R77bn. At 177.8 percent, the bank’s debt/equity ratio remained well below the 250 percent statutory threshold.

“We are not supposed to breach this limit and we do not intend to,” Hlatshwayo said.

The DBSA also achieved a cost-to-income ratio of 28.7 percent, compared with 34.4 percent in the prior financial year.

Cash generated from operations increased 14 percent from R2.7bn in the prior year to R3bn.

Dlamini said that over the next three years DBSA would target R120bn in infrastructure support. But he said a combination of a subdued economy, rising interest rates and falling commodity prices made the bank’s work complicated.

Unfavourable economic conditions - especially the fall in commodity prices - inhibited the ability of countries to raise capital for infrastructure projects. Dlamini said the New Development Bank would plug a gap in infrastructure funding in Africa.

Africa’s infrastructure spending needed to be about $93bn (R1 trillion) a year, he said. “We are currently sitting at $53bn.”