HOW BANKS PERCEIVE THE OIL INDUSTRY OIL
Banks want fuel to be just one of the products at a filling Station-They want significant diversification of product range and services.
Mostpeople do not look at Banks as financing partners. They perceive Banks as being only interested in deposits and very reluctant to give loans and essentially not interested in pushing the financial inclusion Government Agenda. If a survey was to be conducted on public perception of Banks by the general public, am not sure, the majority will give favourable feedback.
However, Bankers have their own story to give. Banks have supported the oil industry in Zambia for a very long time and remain committed to continuing supporting the life blood of the economy-energy sector.
In April, 2011, I interviewed the then CEO of the Bankers Association of Zambia, Mr. David Chewe regarding public perception and the role of the Banks in promoting the growth of the Petroleum Industry. Below is a flash back of the interview which still remain relevant today.
The different players in the petroleum industry must ensure that they focus on areas where they have a competitive advantage and are able to secure financial support from the lending institutions.
For a player to remain competitive in the distribution chain; they need a robust business plan that revolves around having convenience stores where petroleum is just one of the products as failure to run this outfit and only relying on fuel revenues may not be adequate to cover all the operating costs including financing costs.” These are the words of the Bankers Association of Zambia (BAZ) CEO, David Chewe
Question
Sir, I get a feeling that most people do not look at banks as financing partners but one just interested in their money and swift to attack them. Is there anything you intend to do to break this historically entrenched public mindset towards your members?
Answer
There are various roles that a bank plays in the bank - customer relationship and providing finance is just one of those. Some of the financing requirements from the entrepreneurs cannot be met from commercial banks whose major source of lendable funds is customer deposits that are largely payable on demand. Banks always ensure that they are prudent in lending and are able to meet the demands of depositors when they want access to their funds.
BAZ therefore, has embarked on a plan to ensure that the public appreciate how these roles are being fulfilled and where there are challenges such as the limited availability of long term finance; the public is made aware of this limitation and pointing the borrowers to other financing arrangements such as capital markets, development institutions and own equity from the promoters.
The Bankers Association of Zambia has been running a radio program on ZNBC Radio 2 where each week each one of the banks is featuring and highlighting the key propositions for different market segments.
Through targeted interactions with different interest groups, BAZ has also demonstrated its commitment towards strengthening the banks’ relationships with their customers.
Through this process, it is hoped that the public would also appreciate some of the challenges banks face in servings their customers.
We also wish to advise the public that BAZ is collaborating with govt. through the Ministry of Commerce Trade & Industry in implementing the MSME Policy. Under this agenda, one of the key milestones we have recorded is to align the classification of MSME between what govt. was using and the various classifications in banks. We now have one common classification of the MSME in the industry and at govt. level.
As the implementing agencies including BAZ implement some of the interventions in the MSME Plan, we expect the public perception to improve
In conclusion, is there anything you wish to say particularly about the petroleum industry in Zambia from the Bankers’ point of view?
The
Question Answer
petroleum
industry
is highly competitive, with low margins requiring high volume turnover and large cash requirements for the downstream operators particularly in distribution and retailing. Most banks understand the oil marketing business and are able to provide a wide range of financing solutions to the players.
The different players in the petroleum industry must ensure that they focus on areas where they have a competitive advantage and are able to secure financial support from the lending institutions.
For a player to remain competitive in the distribution chain; they need a robust business plan that revolves around having convenience stores where petroleum is just one of the products as failure to run this outfit and only relying on fuel revenues may not be adequate to cover all the operating costs including financing costs.
For operators of distribution and retailing outlets; the business models should be that of convenience stores where convenience to the public such as service station with a supermarket, eating place, Automated Teller Machines (ATMs) and Point of Sale devises (POS) are provided. Banks cannot offer a generic product to finance such an operation (Convenience store) but a solution that involves a series of products and services. Some of the big players in the petroleum industry are operating these outlets while others have leased them out.
Banks are challenged in cases where the business entity wants to secure 100% funding as this does not demonstrate commitment to the project by the business entity/promoter and hence the encouragement for entrepreneurs to access venture capital funds, capital markets or equity from partners.
Financing of crude oil importation is largely financed through a combination of trade finance products and generic products to address the cash flow differences in the production and distribution processes.
Some of the distributors own transport companies while others have standing agreements with transport companies and banks are able to offer solutions that address the financing requirements of different parties in the value chain. Entrepreneurs must demonstrate that their business proposals are bankable through the business plans and once financed, through the periodic performance reporting and monitoring of the credit facility.