Lynda Loxton
Boland Bank, based in Paarl, has been transformed over the last year from a relatively small, mostly Western Cape bank into a more sophisticated market player serving the country as a whole.
Not surprisingly, the process has placed some strain on management and revealed weaknesses in bad-debt control, which it is working hard to remedy.
In the bank’s annual report, managing director Michiel le Roux admitted that the bigger spread of activities had highlighted a lack of training and managerial depth, while spending on information technology had to be increased to match the service provided by other banks.
Of particular concern was improving the quality of advances. In the year to March 31 1996, the bank’s attributable income amounted to R62,9-million, while R49,1-million was provided for specific bad debts. This was over and above the R38,2-million set aside as a general provision to provide a buffer against unexpected occurrences.
“These figures illustrate a substantial improvement on the previous year when our defaulting clients were R3,3-million better off than our shareholders!” Le Roux said.
“However, our provisions are still far too high — 0,98% of advances. Our aim is to make provision for no more than O,75% in a normal year and even that is probably still twice as much as we should eventually be losing per year.”
Attention was therefore being paid to non-performing assets and doubtful and bad debts.
“Purging our loan book through active management will cause losses during the 1997 financial year, but will reward us with lower write-offs in future years,” Le Roux said.
“Realising non-performing assets quicker may also result in capital losses, but does have the advantage that the part recovered becomes available for interest-bearing finance again. This year’s normal provisions will be less than O,75% of advances, but these corrective actions will probably see the total write-off rate remain at a high level.”
Another aspect needing attention was better communication and training, the best tools against bad debts.
He said the largest debts occurred when, in a bid to avoid losses, additional loans were granted to clients who were already in trouble. This called for quick decision-making and short communication lines and he admitted “we do not spend enough on training. Our aim is to have fewer, but better trained people.”
Steps had also been taken to ensure that all staff took responsibility for their actions by being “much closer to the coal face” and they had, for the first time, been asked to nominate a director to serve on the board of Boland Bank.
`We are undertaking a fundamental analysis of all the bank’s activities: what we do, how we do it, where we do it, who does it and what it costs,” Le Roux said.
In these days when most banks complain endlessly about margins (hence their recent interest rate hikes), that seems to be the way to go in banking.
l Chairman Christo Wiese said in the annual report that the most significant development in the bank’s history had been its restructuring last year to create a holding company, Boland Bank Holdings Limited, and to recapitalise the bank through a R383-million rights issue.
The rights issue, together with a further issue of secondary capital in the operating company, raised the group’s capital from R289-million to more than R1-billion by the end of the year.
The bank also syndicated a general purpose loan of $60-million on the international capital market, which not only made funds available for a wide range of corporate finance projects, but also further introduced the bank to the international banking world. This had already started with its link up with Malaysia’s Landmarks Berhad, but any extra exposure helped.
Locally, Boland Bank has established a joint project with Seeff Holdings, known as Seeff Home Loans, to provide a one-stop service for prospective house buyers. It has also taken up a 50% stake in brokerage firm SMK Securities. It also took a 60% stake in Boland Financial Services, a specialist merchant and investment banking service.