David TC Davies challenges Vaughan Gething over Development Bank losses

Secretary of State for Wales David TC Davies has asked First Minister Vaughan Gething to explain why the Development Bank of Wales – which is wholly owned by the Welsh Government – made a loss of more than £62m, according to its latest accounts.

Launched in 2017, when it succeeded its predecessor Finance Wales, the bank’s remit is to invest in companies that, despite having a good business model, can find it difficult to secure credit from the commercial banking sector.

DBW has been in the news recently because of its role in the “dodgy donations” scandal involving Mr Gething.

Nation.Cymru revealed how Mr Gething had received donations totalling £200k for his successful Welsh Labour leadership campaign from Dauson Environmental group, whose main director and owner is David Neal, who has been given two suspended prison sentences for dumping toxic sludge in the Gwent Levels, a sensitive landscape to the south east of Newport.

We also revealed that one of the companies in the group had received a £400k loan from DBW – raising questions about why it had been necessary to borrow money from the Welsh Government’s bank. At the time of the loan, Mr Gething had responsibility for DBW as Minister for the Economy, although he has stressed that he has no decision-making role in relation to loans made to companies by the bank.

Critical 

Mr Davies has been critical of Mr Gething’s decision to accept the donations from Mr Neal. Now he has raised concerns about the losses of DBW as reported in the bank’s annual accounts for 2022-23. DBW has multiple subsidiaries. A note in the accounts states: “The parent company’s loss for the financial year amounted to £62,091, 506.” In the previous financial year the loss was £28,854,096.

In a letter to Mr Gething, Mr Davies writes: “I note that Companies House has recorded enormous financial losses from the Development Bank of Wales – an entity you had oversight of whilst Minister for the Economy.

“It would be appreciated if you could provide me with answers to the following questions:

* Why is the bank making such a huge loss?

* Can you publish a full list of the organisations that the bank has lent to?

* Can you also publish a full list of those that have any outstanding loans?

* How much has the Dauson Environmental Group received in loans from the bank?

* With the bank continuing to sustain enormous losses, what efforts have been made to retrieve the outstanding loans?

* Can you explain why the Wales Life Science Investment Fund managed to lose £27 million?

“Having gone through the accounts it is my opinion they are far from transparent – and, given the bank is funded by the taxpayer, this needs to change. It is imperative that the public is provided a full explanation for the scale of the losses, as well as answers to the questions posed above.”

A Welsh Government spokesman said: “This is one for DBW to respond to – but Mr Davies will receive a reply to his letter in the usual way.”

Accounting treatment

A spokeswoman for DBW said: “The Development Bank of Wales is aware of the letter from the Rt Hon David TC Davies MP, raising questions about the 2022/23 annual accounts. As fully explained in the published document, the loss posted is due to the accounting treatment of non-cash items such as notional interest on Welsh Government loans and adjustments in the fair value of equity assets.

“These adjustments are in line with the International Financial Reporting Standard and were made considering the weaker economic conditions in the UK including persistent high inflation and market interest rates.

“On a cash flow basis, the Development Bank generated £47m, £22m of which went to repay Welsh Government loans.

“The accounts are subject to both external audit and robust annual scrutiny by the Senedd’s Economy, Trade and Rural Affairs Committee.”

Credit conditions

The spokeswoman pointed us to the Chief Financial Officer’s report which states: “The £21.6m increase in provisions reflects the change in credit conditions at this year-end compared to last year. This has resulted in a £16.8m provisions charge this year compared to £4.8m release last year.

“There have been significant increases in the loss rates used to calculate the provisions charge leading to a 41% increase in the loss allowance and an increase in the effective provision percentage from 11.7% in [2022] to 15.9% in [2023,] reflecting the challenging ongoing macro-economic climate.

“The other key contributor to the loss is the reduction in fair value of our investments. The movement in reduction of fair value from year to year is £5.2m and the reduction itself in [2023] is £30.5m (2022 reduction of £25.3m).

“The reduction in fair value is a combination of realised and unrealised gains and losses on equity investments that the group holds directly (2023 £30.4m compared to 2022 £16.4m with the movement principally caused by a c. £10.4m fall in the value of the Development Bank’s AIM listed shares – AIM being the London Stock Exchange’s market for small and medium size growth companies) and the reduction in the fair value of the group’s investment in the Wales Life Science Investment Fund (2023 £0.1m compared to 2022 £8.9m).”