The piece “National Bank ready to finance mining projects” featured below was initially published in Malawi’s Mining Review Issue Number 16 2014 that was circulated in September 2014.

To learn more about this quarterly publication, edited by Marcel Chimwala, read the post about the “Voice of the mineral sector in Malawi”.

National Bank ready to finance mining projects

Malawi’s biggest bank, National Bank of Malawi (NBM), has underlined its commitment to help develop Malawi’s mining sector by providing financing to potential projects. Mining Review Editor Marcel Chimwala had an email interview with NBM’s Senior Manager for the Wholesale Banking Division Gladys Ganda in which he posed ten questions to the corporate banking expert to establish what exactly the local financial powerhouse has on offer. Excerpts:

Question 1: What products does NBM offer that are tailored for the corporate world, in particular firms in the minerals sector?

The Bank provides working capital finance, project infrastructure finance, commercial property finance, finance for imports and exports, international trade finance, bonds and guarantees finance and operating lease facilities.

Working Capital Finance

Products under working capital finance include:

1. Short Term loan – customers with short term financing needs can access these facilities.
2. Foreign Currency Loans – These loans are available to exporting customers that are able to generate foreign proceeds (e.g. in US Dollar, GBP and Rand) to service the borrowing. Customers export against firm orders or Letters of Credit.
3. Medium term loans – Term loans are available to enable corporate customers purchase assets whilst matching finance costs to cashflow produced by the investment.
4. Syndicated loans – NBM is capable of securing funds by involving other financiers either local or international. Large corporate customers, multinationals, international companies, wishing to expand in Malawi can access this facility.

Project Infrastructure Finance

The Bank provides finances for new and existing businesses e.g. mining projects, energy projects, construction projects, IT infrastructure projects, transport projects and manufacturing projects. The Bank is also positioned to finance projects under Public Private Partnerships (PPPs) either individually or through local and international syndication with local and foreign banks respectively.

Project financing is usually long term i.e repayment period more than 3 years up to a maximum of 10 years, and may be availed in Malawi Kwacha or foreign currency depending on availability and if export oriented. Our lending rates are very competitive and we offer a moratorium of up to 24 months on principal loan repayments for existing businesses carrying out projects. We offer moratorium on both principal and interest for green field projects (Start-ups). The length of the moratorium is dependent on the project’s risk profile and implementation schedule. We require the project sponsor to make a capital contribution to the project as a sign of commitment. This capital contribution varies depending on the risk profile of the project and the sponsor’s financial strength.

Commercial Property Finance

We offer finance for the acquisition of properties for own occupation or commercial purposes to new and existing businesses. The customer is required to contribute towards the cost of acquiring the property and the required debt: equity mix varies with the customer’s risk profile.

Finance for imports and exports

The Bank also offers finance for imports and exports. Relative products include:

1. Pre- shipment finance
2. Export Bills negotiation
3. Export Discount facilit
4. Advances against outward collection
5. Loans against trust receipts

International trade finance

International trade products being offered include Documentary Collection, and Documentary Letters of Credit. We also provide Trade information to our customers – e.g. credit information report – we provide our importihttps://mininginmalawi.com/files/2014/09/23/ng and exporting customers with banker’s opinion and credit standing of their counter parties both locally and oversea; Trade enquiries and letters on introduction.

Bonds and Guarantees

The Bank also offers bonds and guarantees which include tender bond, performance bond, advance payment guarantee, customs guarantee, and retention money guarantee. The Bank is also able to establish other special guarantees upon request. These include: Bonded warehouse, Manufactures rebate, Surtax Bond, Temporary importation of goods, for re-export, Immigration guarantees, Shipping guarantees.

Finance Lease Facilities Offered

1.  Straight Finance Lease The Bank buys the asset chosen by the business customer who is allowed possession and usage of the asset in return for specific rental payments over a specific period.
2. Sale and Leaseback The Bank buys the asset at an agreed price from the Lessee and leases it back to the original owner. Essentially, under a sale and leaseback facility, a Lessee converts capital assets into cash for use in the further expansion of a business or recouping expenses incurred in procuring the capital asset.

Operating Lease

In an operating lease, the Lessor purchases the asset and makes a return or profit. The asset is treated as an off-balance sheet item since the borrower does not capitalize it in the balance sheet. This will be primarily for well established businesses who maintain fleets (especially of operational vehicles) and those who would not want to continue retention of assets after a specific period of time for strategic reasons such as disposal risk, obsolescence and technological advances. The product is therefore ideal for businesses that prefer payment for usage and NOT ownership of the asset.

Question 2: Most mining projects are located in the rural areas? How has NBM penetrated the rural areas?

NBM is spread across the country. It has a network of over 30 service centres, and 80 Auto teller machines. The Bank’s service centre management throughout its network is well equipped to deal with various aspects of customers’ personal and business needs. Our service centre managers draw support from head office functions with specialist skills and knowhow in credit management, treasury services, international trade, information technology, mortgages, asset finance, and legal aspects of banking, among others, to ensure a well co-ordinated and efficient delivery of innovative products and services.

Question 3: Most mining companies have an international background and require prompt fund transfers from different countries. How is NBM placed in the international banking system?

NBM is very well placed in the International banking system due to the Bank’s strong balance sheet. We have correspondents for all currencies tradable in this market that we deal with and we are able to route such transactions to them.

Question 4: Information technology is at the core of mining in these modern days. How has NBM advanced in terms of electronic money transfer technologies and other relevant technologies that are used by the corporate world?

Banknet Online

The Bank has Internet Banking whose brand name is BankNet Online. Bank customers can enjoy around- the-clock, fully-fledged and unlimited access to their account from any corner of the globe, as long as they can have access to the Internet. Internet banking for transferring of money online between accounts, viewing account statement, balance enquiry, stop payments and other banking services.

MO 626 and NBM Visa Branded Cards

Mo626ice is a Mobile Phone Banking system through which you can access various banking services from mobile phone handsets. Mo626ice can be accessed from any mobile phone network in the world as long as the number you are using is registered on the system. You can access the services by dialing *626# on your mobile. Mobile phone banking for payment of various utility services and transfer of money between accounts

We also have an electronic funds transfers platform for paying salaries and other services

VISA Point of sale devices is used for payment of goods and services in shops

We also offer e-statements which are auto-generated and sent to various customers on a daily, weekly or monthly basis.

Question 5: You will note that most of the companies in the minerals sector source their funding from foreign financial institutions. How ready is NBM to finance mining projects understanding that large-scale mining projects require large capital investments?

NBM is ready to finance mining companies in Malawi.

• NBM has the biggest lending capacity amongst all banks due to size of core capital
• If a deal is above our prudential lending limit, we syndicate both locally and internationally.
• We also have the capacity to arrange credit lines with international banks on agency basis to finance such large scale projects
• We have the skills and competencies required to handle mining deals. Our members of staff are sent for various training programmes and attachment with international banks to upgrade special skills that are required in handling mining deals.
• We also tap some skills from our strategic long term financial partners.

Question 6: Will you explain the advantage of sourcing project funding locally from NBM other than from foreign financial institutions if any?

The borrower enjoys the close liaison and professional service interface on the ground in Malawi with a bank that has a perfect understanding and insights on the emerging economic and market dynamics on the ground and that is critical for any banker client relationship.

In addition to that, National Bank lending rates are a perfect value for money and the Bank offers a moratorium of up to 24 months on principal loan repayments for existing businesses carrying out projects. The moratorium is on both principal and interest for green field projects (Start-ups).The length of the moratorium is dependent on the project’s risk profile and implementation schedule. We require the project sponsor to make a capital contribution to the project as a sign of commitment but this capital contribution varies depending on the risk profile of the project and the sponsor’s financial strength.

Most importantly of course, it must be reiterated that in addition to the foregoing, a local bank would have a better understanding of the local operating environment and risks; More face to face interaction between the bank and the customer which strengthens the relationship; Borrowers in foreign currency are exposed to forex risks, given the volatility in our exchange rates which is not the case when they source funds locally and there are no hidden costs and/or clauses in NBM’s loan deals.

Question 7: It is believed by a cross section of minerals sector investors that local funding is expansive as interest rates are relativiely high locally as compared to other countries. Will you comment on this assertion as NBM?

•  Mining is mostly a foreign currency oriented business and as such the deals are mostly structured to be dollar denominated. In this case the pricing is based on LIBOR (London Inter Bank Offered Rate) therefore there is not much disparity between the pricing charged by local banks and international banks
• It is noteworthy that funding which is available locally is not only in local currency. We also provide funding in foreign currency subject to the investor demonstrating their capacity to generate foreign currency for loan repayments
• Before such projects take off, commercial viability needs to be ascertained hence financing costs are built into the financial model so the issue of high interest rates, if any, is taken care of during this viability assessment

Question 8: What products do you have on offer for members of staff for mining companies (type of accounts, overdraft facilities, loans etc)?

•  Transactional account – Special Saver and Current Accounts for those receiving a minimum net salary of MK40, 000.00
• Credit Facilities – a. Pay Day – repayable in 30days, provides temporary relief to employees while waiting for salary
• Consumer Loans – personal loan repayable in 24 months
• Vehicle Loans – for the purchase of brand-new/Second Hand/Recondition vehicles
• Asset Based Finance Loan – for employees who own houses and they want funds for personal use – These loans are repayable in 60 months
• Mortgage/Home Improvement Loans – for the purchase and renovation of a house, repayable in 180months
• Pay day loan
• Employer supported loans
• Mortgages for members of staff
• Vehicle loans for members of staff arranged by the company
• Deposit products – savings bond, fiesta save

Question 9: What advantages do you have as compared to other local banks when it comes to serving company employees?

1.  We have got dedicated personnel who manage the bank/salary earner relationship.
2. Speedy loan processing
3. Employees can access any amount at any point in time – no liquidity challenges
4. We offer unique solutions – e.g. Asset based finance loan and payday loan – which is most suited to company employees with instant approvals
5. Most technologically advanced banks with products such as – VISA POS, Mo626, internet banking
6. Widest footprint in terms of ATM coverage across the country

Question 10: Do you have any products on offer that are tailor made for artisinal/small scale miners? Please give details.

•  Invoice proceeds financing – This is a short-term financing arrangement extended to an SME for working capital on the strength of issued invoices
• SME short term and medium term loans and overdrafts, guarantees and letters of credit.