Managing credit, is managing the future- Pieré Clarke
Aaron Brown wrote in an article titled, ‘The Origins and Evolution of Credit Risk Management’ that credit is as old as writing, this month, Pieré Clarke, Head of Credit Department, Standard Bank Namibia outlines the basic rules of borrowing and addresses concepts such as interest, collateral and default.
She looks at the modern bankruptcy concepts of protection from creditors and the extinguishment of debt.
PF: Pieré Clarke sounds like a new name in Namibia’s business realm? Who is she?
PC: I am just an ever inquisitive child of Africa, forever searching for a way to make a difference.
PF: You are the Head of Credit of Standard Bank Namibia, what does this entail?
PC: Managing Credit is all about balancing the needs of the client that wants to borrow money from the bank and safeguarding the money entrusted to the bank by its depositors and shareholders. In essence, it is about ensuring that the clients we lend money to can and will repay it so that we will, in turn, be in a position to return it to either the client that deposited it with us, or our shareholders when they require their investment back.
PF: How big is such a department within the bank?
PC: There are 130 people that work in the Credit Risk area of the bank. My team is divided into various sub-teams that own parts of the credit process, such as:
• Credit Origination: They write credit applications and participate in the preparation of loan documentation
• Credit Evaluation: The people that approve or decline loans
• Risk Management: This team is responsible for the on-going maintenance of the lending book
• Collateral: These guys prepare and act as custodians for all the legal documentation
• Rehabilitation and Recoveries: In this space we try to assist a client when they can’t repay a loan or if it falls in arrears
I also have a legal advisor, a team that ensures that all the lending complies with the bank’s standards and policies and a finance team.
I report to the Managing Director in Namibia, but as we also form part of the greater Standard Bank Group, I also have a responsibility to the Chief Credit & Risk Officer of Standard Bank Africa as Namibia is such a large part of the African Portfolio – 2nd to South Africa.
PF: In such a seemingly complex department, how do you demonstrate leadership?
PC: There are many leaders in any environment. I am but one of the leaders.
My role is to ensure that we know that the objectives and goals are that we want to achieve as a bank and as a team. Once the team knows this, it becomes my duty to ensure that they can all perform their respective roles. I have to help the team deal with the obstacles that could keep them from achieving their respective objectives. If they can’t be removed, a way has to be found around, over or through those obstacles.
I believe that if each leader in my team and I do that, we shall all be successful at the end of the journey.
PF: Managing such a team, obviously there are instances when you have pushed for something the rest of the team didn’t support...
PC: We live in a democracy and as such you may be out-voted sometimes. I have been in situations where the time was not yet right for a specific idea and thus wasn’t supported. You can do three things:
1. Keep pushing your idea and alienate the whole team and pit them against the idea, thus ensuring its failure.
2. Wait for the right time to present the idea. Usually once the rest of the team has been engaged to familiarise them with the idea.
3. Walk away and accept defeat.
I have found that engagement often removes fear and resistance and that will be for improved decisions.
PF: How do you describe your department’s relationship with SMEs? How has the bank been making a difference for entrepreneurs?
PC: Credit supports our clients facing business partners. We normally do not have direct interaction with SME owners. Our role is to objectively analyse proposals and advise on the perceived risks and whether they are acceptable or adequately mitigated.
However, we also believe that we have a duty to improve skills’ levels and as such we often play advisory roles.
We recently assisted in a drive with our business colleagues to assist existing SMEs with working capital requirements where we noted that they had a positive history with the bank.
PF: Any figures or statistics that show how you have dealt with SMEs over the past financial year?
PC: I can’t share the last year’s numbers with you in respect of total value advanced, but I can tell you that just in the last month we advanced N$155 million to 200 different SME clients. Over the last 12 months we’ve lent money to 3358 SME clients. This excludes clients in the agriculture sector as well as clients who borrowed funds in their personal capacity for use in their businesses.
Generally, we find that we have a third more SME clients than we have traditional commercial clients.
PF: But, how do you differentiate between BEE moguls and SMEs when dealing with credits?
PC: As you call them, the moguls, normally have strong balance sheets and would be able to access traditional financing on the back of that. SMEs on the other hand tend to have great ideas, know how to run their business, but not the backing of a strong balance sheet to access traditional financing.
PF: And have they been good on credit?
PC: In all honesty, traditionally SME clients represent a higher credit risk than more established commercial clients. As a result we’ve been looking at alternative, more non-traditional ways to assist SME clients. Some of what we’re busy with is in the development phase, so I won’t expand on that, but what we have seen is that we need to look at ring-fencing transactions so that the deal repays itself. In this way, we can assist SMEs with specific transactions that will allow then to grow their business.
PF: What is the level of default currently? And which sector has the most suspects?
PC: At present our client default rate is just above 2%. We do, however, find that even after clients have defaulted they often repay the loan as soon as they are able and as a result the bank’s actual loss rate is even lower that 2%.
We do find that traditionally business owners are more likely to default on their loans than salaried persons. The default rate is 75% higher for business clients. We find that the SME clients are often the hardest hit by any economic downturn and as a result the defaults in this area have been higher in our experience.
PF: Namibia is currently ranked 69 out of 183 countries on the ease of doing business index, which deals more on the conduciveness of starting and operating a local firm. How easy or what are the major challenges which you wish should be scrapped to enable individuals to start a local firm?
PC: We have very robust anti-money laundering legislation and new entrants to the market often find this frustrating. However, to ensure that we retain our credibility internationally this is extremely important.
I do, however, believe that the ease of doing business is being hampered by our Exchange Control regime. Foreign investors are often discouraged when informed of the restriction in respect of expatriating funds.
We also have to admit that the cost of doing business in Namibia in respect to labour costs also has a negative impact on the index. It is a reality that we compete for the Asian and South American emerging economies for investment.
PF: As a credit manager, what is the effectiveness of Namibia’s bankruptcy laws in facilitating lending?
PC: Namibia’s Insolvency Act is quite robust and does provide clear guidelines on events of default, protection for creditors, etc. That does not mean that there isn’t room for improvement. Law is and will always be dynamic and evolving. That is why we often see amendments to existing acts.
PF: Is general description of debts and obligations permitted in collateral agreements, so that all types of obligations and debts can be secured by stating a maximum amount rather than a specific amount between the parties?
CP: Both options are available and it often depends on the type of finance the client is entering into. For example, restricted or asset/collateral specific is often used for vehicle finance whereas general agreements are often used for overdraft type financing
PF: Why is it now difficult for single people to be financed on property?
PC: I believe that problem does not lie with the financing available to single persons, but with the availability of affordable property. Residential properties in Namibia, especially in urban areas are expensive when compared to similar economies. As a country, we should thus be addressing the shortage of residential properties in especially the lower to middle income market
PF: How do you make sure that your bank’s financing model does not leave out the lower end within the middle-income group which at times does not qualify for financing schemes aimed at low earning groups?
PC: We have built our personal lending models around the ability to repay debt. We take a view of the person’s salary and lend a factor against that monthly income.
The repayments are then also calculated as a factor of the amount advanced and should never exceed a certain percentage of the net income. We do this to ensure that a person retains sufficient surplus income to cater for general living expenses.
To illustrate: Say I earn N$3 500 per month. As a general rule the bank would then be able to lend me three times that amount, so N$10 500, on a personal loan. The repayment would be around N$265 per month, thus about 7,5% of my gross income.
Generally any repayment on a loan should not exceed 25% - 30% of a person’s income.
PF: What do you make of the current global financial situation hitting Europe and much of the West?
PC: Global economies are in flux. The old rules no longer apply and I believe that when the world emerges from this financial upheaval, the economic power may well have shifted.
Governments face the dual challenge of retaining stability in their respective economies, as well as stimulating growth. In times of increasing unemployment in a lot of these economies, this is a very difficult balancing act.
PF: Does it or will it ever affect locals or Namibia at large? How and why?
PC: It absolutely impacts Namibians – both directly and indirectly.
I think it is easiest to illustrate by way of examples. Directly, as a result of reduced exports of Namibian products e.g. leather used in the manufacture of vehicles. Fewer luxury cars are sold internationally, thus less leather is required for the seats, thus we sell less leather, and thus the export company buys less leather from the farmer. The latter two receive less income, thus profits reduce and less profit mean smaller increases and bonuses, if any.
It also impacts indirectly and I think one of the best examples would relate to foreign direct investment. Such investments are usually funded by developed economies and emerging economies have benefited from such investment. With the traditional developed economies now in turmoil, such funding may be redirected via bailouts to these economies instead of the emerging economies, thus delaying infrastructure and other development.
We’ve also seen that as a result of international retrenchments, Namibians that worked outside the country are returning. They previously earned foreign income and often repatriated some of that to Namibia in support of their families that remained. Some of these Namibian have lost their jobs and as a result whole families’ disposable income has disappeared overnight.
This is something we can spend all day discussing, there are just so many ways in which Namibians are impacted.
PF: What is your deepest worry in your line of work? What keeps you awake at night?
PC: I think that worrying is counterproductive. I do however, try to ensure that I identify concerns and that we plan to address them. In this instance the most difficult thing to address in the short term is the skills shortage in the Namibian market. Qualified bankers are hard to find. We thus have to invest in our people, thus ensuring that we have qualified people serving our clients. We have to draw from the more experienced team members and thus ensure that the knowledge and skills they have is imparted to newer members of the team.
PF: Describe a situation in which you made a mistake and how did you correct the situation?
PC: I truly believe that we all make mistakes at some point in time and that is how we recover from those mistakes that really matters. I can assure you that I have made many mistakes in my life, most I don’t even recall, so to highlight one, would be to elevate it in importance above another. I will share with you my philosophy on mistakes though: I try to follow the wise words of my father. He always told me that if I make a mistake to own up to it, apologise and then fix it.
So, that is the way I deal with my mistakes. There is one more thing I try to do though, and that is learn from my mistakes. Mistakes can be amazing opportunities to learn about yourself and others.
PF: What do you regard as the top three skills of a bank manager?
PC: In my opinion: The ability to deal with people; The ability to come up with solutions - on your feet; and Passion Everything else can be taught.
PF: Finally, what are your future plans?
PC: There is a saying, and I have no idea, who the author is, but it says: ‘Live in the moment, but plan for the future.’ So, I try to live my life to the fullest in the present, but I do have a view of my desired future and it is filled with new adventures – both in my private and work life. I’m a career banker and I believe that this is one of the most fulfilling careers anyone could wish to follow.
As bankers we get to make a real difference in people’s lives. We help make their dreams come true: provide funding for their new business venture, help them buy not only a house, but make a home, educate their kids, etc. So why I’m telling you about banking when the question relates to the future? Because that is what I wish to achieve in future: To be able to provide innovative solutions to people that will make a positive difference. PF