Though the Covid-19 fallout means it has taken a substantial hit to its profit, the Development Bank of Southern Africa (DBSA) says it “remains well positioned” to play a lead role in SA’s infrastructure drive.
The state-owned bank, which specialises in development loans, has reported that profits fell more than three-quarters in its year to end-March, as the adverse effects of the pandemic forced it to raise provisions against loans likely to come under pressure.
In line with International Financial Reporting Standard 9, the bank raised provisions against potential increased distress in its loan book, but this has “not as yet resulted in any meaningful increase in nonperformance, with realised contractual loan book inflows remaining at or close to expected levels”, it told Business Day.
The DBSA is a pivotal agency in the ambitious government infrastructure drive that it hopes will reignite growth and help the country recover from the pandemic.
In August, the DBSA signed a memorandum of agreement with the Treasury and the department of public works and infrastructure, establishing the long awaited Infrastructure Fund. The fund, to be spearheaded by the DBSA, is intended to help drive the government’s build programme through blended finance projects that will tap into funding from local and international financing institutions in the private and public sectors, as well as the government.
The pandemic has, however, exacted a toll, with the bank reporting net profit fell 84% to about R504m in its latest results released on Friday. The bank’s total expected credit-loss charge rose to R3.6bn to end-March from R1.4bn previously.
Further gearing
But the DBSA said it remained exceedingly well capitalised, with a capital-to-assets ratio of 37% at end-March 2020, leaving it “substantial headroom for further gearing”.
Craig Ivy, investment analyst at Futuregrowth Asset Management, said the results were a fair outcome in the circumstances.
Considering that on March 31 the country was in hard lockdown, there had been a global sell off in equity and bond markets and future economic conditions remained uncertain, “then it was reasonable to assume that provisioning and fair value adjustments would materially affect this set of financial results”, Ivy said.
As with any lender, it was difficult to determine if provisioning had been adequate, given the uncertain economic outlook, said Ivy. Nevertheless, DBSA provisioning levels “seem reasonable” and were in line with Futuregrowth’s expectations.
As the economy opened up “there could be an improvement in DBSA’s asset quality during financial year 2021”, said Ivy.
Futuregrowth head of credit Olga Constantatos said that the DBSA’s capital base and liquidity position were robust before Covid, and remained robust.
“We do not think that these results materially affect their ability to assist the infrastructure drive,” she said.
The bank could still access listed capital markets albeit at higher rates, and this remained an important source of capital for funding new projects, she said.
Infrastructure projects would need to be funded with a mix of development finance institution and private-sector funding, Constantatos said.
“There is significant appetite from investors for well-structured, legally sound, financially feasible and corruption-free infrastructure projects that earn a suitable commercial rate of return,” she said.
But the DBSA was “just one player in the chain that produces policy and projects”, Constantatos said.
The impediments to SA’s infrastructure rollout had more to do with the abilities and capacity of the various levels and organs of the state to conceive, plan, execute and deliver projects, she said. With Karl Gernetzky
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