The Development Bank of Namibia (DBN) is preparing measures to provide relief to borrowers in the wake of the Covid-19 pandemic, CEO Martin Inkumbi has confirmed. Commenting on the need for relief, Inkumbi said the DBN recognises that borrowers are experiencing difficulty, particularly in the tourism sector and among SMEs. In light of this, the bank will commence providing relief to preserve the development impact of its loans and the economic activities they were aimed to support.
Among the measures, Inkumbi announced a temporary moratorium on repayment of capital and interest, equity conversion and resourcing, as well as the implementation of the N$500 million relief facility announced by the minister of finance, Iipumbu Shiimi.
Loan payment holidays
The thrust of the moratorium on debt and interest repayment, Inkumbi explained, would be targeted at SMEs, as well as tourism and hospitality enterprises (both SMEs and corporates) that already have loans from the bank and are affected by the Covid-19 lockdown. Tourism and hospitality include accommodation establishments, restaurants, car hire and other enterprises in the sector. Other corporate borrowers not in the tourism and hospitality industry will be considered on a case-by-case basis and should individually approach the bank to discuss relief needed. The repayment holiday excludes contract-based finance beneficiaries, who will have to approach the bank for relief to be considered on a case-by-case basis.
Although the bank monitors repayments, the sudden and extraordinary nature of the situation means it will not immediately be able to identify all individual clients experiencing difficulties from ongoing monitoring of repayment records. Inkumbi, therefore, called on borrowers to approach the bank if they are experiencing sudden contractions of cash flow due to Covid-19.
The moratorium will, however, not absolve borrowers of their debts but a three-month ‘debt holiday’, during which repayment will be resumed at a later date and interest will be capitalised for the period of the holiday. The duration of the debt holiday will be three months, subject to the current duration of the lockdown and a reasonable allowance for recovery and resumption of economic activity. This, said Inkumbi, will, however, be reviewed on the basis of the ongoing economic impact of measures to contain Covid-19.
While the payment holidays are for three months, DBN will continue monitoring the situation and will review its measures as developments unfold.
Asked why the bank will not cancel loan repayments, Inkumbi cited two reasons: firstly, he said DBN has to match its assets and liabilities and the bank is expected to honour repayments on amounts it has borrowed; hence, it cannot completely cancel borrowers’ loan repayments.
Secondly, he said DBN is duty-bound to recover its capital and the interest to make additional loans. He noted that DBN operates like a revolving fund, lending money to enterprises to grow and develop infrastructure. Collected repayments from these borrowers are used for on-lending, where the money is again used to finance a new wave of borrowers. The collection of a large proportion of the bank’s current loan book is, therefore, critical for sustainability and its very existence.
Inkumbi continued that beneficiaries of the moratorium must make management accounts available to DBN and explain the direct and indirect impact that the Covid-19 pandemic has had on their businesses. The regular provision of financial records to the bank, Inkumbi said, is a normal requirement in the bank’s contracts with borrowers, so he noted he does not expect difficulties, adding that as 31 March is year-end for many companies, financial statements should be in preparation for many of the bank’s borrowers. For those with different year-ends, he urged them to have their accountants or bookkeepers draw up preliminary statements. Although DBN is accepting and assessing applications for finance through remote working practices such as email, it will take into account the impact of the lockdown on new borrowers and appropriate repayment grace periods will be considered.
Inkumbi urged enterprises to reconsider their business concepts and operational models and make adjustments where possible to minimise the impact of the lockdown on the business expenses in particular and prepare to continue with business in the near future as the lockdown is hoped to end at some point.
On the topic of equity conversions, Inkumbi said, this may be offered to large corporate borrowers that have larger loans and are experiencing cash flow challenges that can only be addressed through a restructuring of the business’ capital structure, usually by increasing the equity component and reducing the debt portion. This has the implication of DBN becoming a shareholder in the said enterprise.
The intent will not be for DBN to hold the equity in the business for the long-term, but to use the equity to reduce the debt burden and enable the said enterprise to continue as a going concern and grow. DBN will at some point exit by selling its shares back to the owners, to a new group of investors or even through a listing on the NSX. The debt conversion option is only viable for companies with a strong business case and potential for growth, and it will be applied with diligence.
SME working capital support
On the topic of the N$500 million SME stimulus announced by the finance minister, Inkumbi said DBN is in close consultation with the minister to raise the required capital and how to implement this relief measure. He said an announcement on implementation will be made by the bank in the near future.
Although Covid-19 is disrupting the economy, it is vital to focus on recovery and resumption of economic activity. This, Inkumbi said, will rest on all pillars of the economy but particularly Namibian enterprises. “We are in this together, and by working together, we will emerge stronger, he concluded.
2020-04-06 11:17:10 | 2 months ago