Risk averse local banks skirt mining sector

NEO SENOKO

Maseru -Commercial banks in the country are often reluctant to invest in the local mining industry due to the high risk involved in the sector. This was the general view from the banking sector during the 2018 edition of the Mining Khotla event that seeks to unlock business opportunities for local Basotho companies in the mining industry in Lesotho.

While big corporates in the mining sector may be able to access finances from local commercial banks, it is the small and medium players in the industry that normally struggle to receive financial assistance from the banks to successfully pursue their projects, the forum heard. First National Bank of Lesotho’s Head of Corporate and Investment Banking, Motšeare Tšosane, said the reasons are that there is a high level of risk involved in the mining industry.

“The mining industry is risky and expensive because you have to invest huge sums of money in a project that is not certain to succeed. For instance, you have to invest and pray that diamonds will be found in that particular area of mining, it also depends on the stability of the prices as well as the economic conditions in South Africa and the favourable exchange rates.

“So it is a very tricky business even for the upcoming suppliers and sub-contractors because it is apparent that if corporate A does not survive, automatically a sub-contractor will not survive, that is why capital is so important in this industry,” Tšosane said during his presentation on Thursday this week. He stated further that his bank looks at the size of the company and their needs before committing into the financing aspect.

“Our credit thinking is such that we focus on things such as your transactional function that means it is important to have a positive relationship with the bank and also score highly when we do our credit assessments,” he explained. Standard Lesotho Bank Chief Executive Officer, Mpho Vumbukani shared almost similar sentiments, citing that mining issues can be complicated hence their partnership with other investors all over the world which also helps in a move to attract foreign direct investment.

“So we have representation in places such as London, New York, Hong Kong, Johannesburg and Beijing. It helps us in liaising with other investors who might be interested in our country because we give them a picture of what to expect in Lesotho,” Vumbukani noted during the same event. He emphasised that a company needs working capital in order stand a chance to access financing at the bank because commercial banks are not meant to finance start-ups by design.

“The work of banking is not that easy because we depend on the deposits we get from customers, any bank anywhere has a capital of around 10 to 12 percent, while close to 90 percent is from deposits,” he clarified. That is another reason why a company should be up and running first in order to gain access to finance from commercial banks in the country. “Sometimes people say we do not want to give them money but the truth of the matter is that we have to consider all the critical aspects before approving any business proposal,” Vumbukani said.

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