1. REFOCUSING FOR RESULTS
DBSA’S EXPERIENCE OF BALANCING DEVELOPMENT AND FINANCIAL
SUSTAINABILITY
Mr. Patrick Dlamini
Chief Executive Officer

2. CONTENTS The case for change Refocusing and restructuring
Benefits for the Bank
Achieving Development Results
Conclusions

3. THE CASE FOR CHANGE

4. Core operational performance was declining
operating expenses increasing faster than income as the Bank took on a wider range of projects
DBSA took on a wider range of projects to provide technical capacity for infrastructure functions in municipal and provincial governments as well as supporting national government with policy and research work. As a consequence the rate of growth in core operating expenses outpaced that of operating income. 1

5. Fall in net profit Surplus for growth declined sharply
Type paragraph here.
Profit collapsed from 2009 and moved into losses in 2012 due to equity revaluations. 2

6. Increased lending increasing leverage
Bank on trend to exceed debt ceiling
Type paragraph here.
Warning signals were there that DBSA would run into difficulty if it stayed on the ‘business as usual’ trajectory. 3

7. DBSA faced a number of challenges
Board resolved to tackle the problems through restructuring
DBSA is government owned DFI. We exist to serve a mandate for development in South Africa and the African continent.
It is proper that Government should turn to the Bank and ask us to do more. It is our responsibility to rise to those challenges where we can perform. It is critical however, that meeting the expectations of Government does not grow the business scope to the point where it starts to loose focus. In retrospect this is what happened.
The 2008 global economic crisis and its effects increased competition in our traditional infrastructure markets
Some equity investments performed poorly which weakened the Bank’s balance sheet. 4

8. REFOCUSING AND RESTRUCTURING

9. Three core elements to the refocusing
Reorganisation on three fronts simultaneously to restore
focus and efficiency .
Involved asking probing questions about what we were good at and being honest about where we were falling short:
Development Finance choosing were we have the capability to perform best
Non-financing development activities asking how our systems could deliver infrastructure more efficiently as an implementing agent for Government
Capabilities taking steps to improve our pricing and loan approval process 5

10. Revise the portfolio mix
Lending in core sectors, accelerating infrastructure delivery and enhancing operational performance
Here is the balancing act at the heart of sustainable development finance. Elements to balance are
Many of the communities we serve experience high levels of poverty and inequality. Our responsibility is to finance infrastructure that raises welfare in this challenging space on a sustainable basis.
The bulk of financing activity must be in the sustainability core to support subsidised activities
Accepting mandates for additional development activities must be backed by full cost recovery
Surplus boosters should be added when possible.
This portfolio therefore depicts sustainable financing. 6

11. Internal transformation
Multiple initiatives to Improve systems and processes
Involved running teams within the Bank to redesign business processes, improve the value offered to clients and build a new culture of performance 7

12. Shareholder Support Government backing for restructuring processes
Government stood behind the restricting process and agreed to inject additional capital in the amount of R9.7 billion in installments over three years starting
Domestic financing is now focused on four core sectors.
Infrastructure delivery is now concentrated in two sectors
TRANSPORT
ENERGY
ICT
WATER
Our 4 core sectors and 2 delivery areas for domestic operations
HEALTH
EDUCATION 8

13. BENEFITS FOR THE BANK

14. Ramping up disbursements and using our people better
Five year financial performance
After 3 years of disbursements around R8bn we have pushed it up to R12.5 bn 9

15. Refocus is delivering results
Five year financial performance overview
Sustainable earnings and net interest income are now rising as at our 31 March 2014 year end 10

16. Strengthening the balance sheet
Basis for sustainability
We are successfully brining down our cost to income ratio and strengthening the balance sheet 11

17. ACHIEVING DEVELOPMENT RESULTS

18. Municipal financing
141% in disbursements (to R815M) to secondary and under-resourced municipalities
Highlights
Financing
Total approvals of R3.2 billion and disbursements of R1.7 billion
Disbursements to secondary and under- resourced municipalities increased by 141% to R815 million
Planning and implementation support gaining traction
households provided access to new and improved service in water, sanitation and electricity
4 600 temporary job opportunities created
Important market segment for DBSA
Shows improving DBSA capacity to channel funds to municipalities with high needs yet are challenging to fund due to lack of technical capacity and weak revenue bases

19. Municipal Funding: Households benefited
Development impact from financing
Playing a pivotal role in development in SA and the region
Municipal Funding: Households benefited
Non-municipal Funding (RSA and SADC):
Energy Generation
Renewable: 2,588 MW (16% of funding from DBSA)
Coal IPP: project preparation financing for 3,600 MW
Housing
Funded 120,000 units of housing (30% of project funding from DBSA)
Roads
Enabled 1,880km of roads (55% of project funding from DBSA)
Education
Student accommodation of 1,630 beds (46% of project funding from DBSA)
households
benefiting from municipal financing, 35% of funding from the DBSA
Large number of households benefiting from electrification, water supply, sanitation and roads.
Projects supported via third party financing:
ICT broadband cable system
Two new airports in Africa and the expansion of one in South-Africa
Cellular operations in the rest of Africa
Various renewable energy projects 13

20. Regional financing
R3.6Bn in funding disbursed to SADC to promote regional integration
Mainly funding road, transport and energy projects that are the physical assets that create regional integration a
Angola
R2.1Bn
Zambia
R200M
Multi-country
R0.6Bn disbursed
Zimbabwe
R700M 14

21. Building rural housing
Infrastructure Delivery
Transforming rural communities
Replacing mud schools
Building rural housing
Phase I
32 schools completed during the year bringing the total to 49 schools in Phase I
Phase II
18 schools were in construction as of 31 March 2014
71 schools to be completed over two years (2014/15 and 2015/16)
Housing Completed 560 units
Additional 240 units at roof level
Developing experience as an implementing agent for Government to successfully deliver rural housing schemes 15

22. CONCLUSION

23. Balancing development and financial sustainability
Lessons from the DBSA experience
DFIs are expected by their government shareholders to scale up their contribution to development
It is proper that our shareholders and the communities we serve should have high expectations of us, give us stretch targets and make us strive for excellence. The danger lies in going too far to satisfy those expectations and loosing focus. Ultimately that ends in institutional collapse.
DBSA has gone through a journey to refocus and restructure. It involved a hard look at ourselves and admitting that there were things be fixed. Parts of the journey were painful, specifically the headcount reduction although it was entirely voluntary. That journey has give us wisdom on how to work smarter to improve our pricing, streamline decision making and provide better value to our clients.
At the heart of our financing model is a portfolio approach which recognizes that our development core extends into activities that are a net cost for the Bank and these must be covered by sustainable financing activities. Additional development mandates must be accompanies by cost recovery.
Positive results are flowing from our strategy. We are encouraged we can do more in future.
Delivering development and maintaining financial sustainability needs a financial model with a portfolio of projects generating surpluses that can cover essential activities that are a net cost to the institution 16

24. THANK
YOU