Cooperative Bank Staggers Under 388.7m Br Invalid Loans

With a mass suspension and one arrest, hopefully CBO can move to reverse its declines in profit after tax and earnings per share

An auditor’s opinion on the financial performance of the Cooperative Bank of Oromia (CBO) S.C. for 2014/15 has revealed that the Bank actually made invalid loans to the sum of 388.7 million Br. Yet, the Bank is said to have survived its dark past during which it faced the mass suspension of its top executives by the National Bank of Ethiopia (NBE).

The auditor’s report to which Fortune has been denied access, disclosed that of 251.1 million Br in loans given to import businesses, 248.4 million Br was loaned interest free and without security. The Bank also made loans to the value of 50.2 million Br to four customers without any loan agreement. These loans were given at Jijiga branch, where such irregularity finally led to the Manager being put into custody.

CBO also issued 40.2 million Br in loans for outward documentary bills purchased (ODBP) at the Dire Dawa branch.

The report stated that the loans had remained for more than a year with no provision maintained in the bank’s books of account.

“There must be a problem in the item of export,”  commented a banking expert with both local and international experience. “If it has stayed for more than a year it has to be recorded as a loss.” He further commented on the significant loss of interest income caused by these aberrations in the Bank’s operations.

The Bank’s updated report was completed after the initial one was rejected by the central bank.

CBO had initially reported gains in total income amounting to 1.2 billion Br. The rejection by NBE followed its inspection, which revealed that there were more bad loans that had been overlooked and more provisions that had been kept for those loans.

The bank had actually produced two reports and had published the earlier one rejected by NBE.

A senior bank manager who is familiar with the process said that before banks produce and publish their reports, the drafts have to be submitted to the National Bank. Only after that can they be made available to the public.

He associated the differences in the two findings by authorized auditor, Degefa Lemessa, with what he called a “window dressing” practice in the banking sector. Usually banks use techniques to hide their non-performing loans (NPL), sometimes withholding information that would disclose the number of their NPL. Sometimes accountants deliberately cooperate with the banks to hide the information, said the bank manager.

According to central bank directive No. SBB/43/2008, “Asset Class & Provisioning”, non performing loans  with repayment programmes that pass due 360 days, interest remains uncollected and there is no repayment programme.

This has also caused uncollected loans ratios to be out of the range required by the central bank. CBO’s non-performing loans increased from 1.8pc to 2.8pc.

Its revised report showed that loans to deposits ratio reached to 89pc, which is rarely seen in the banking industry. The industry average as of 2015 was 63pc.

“There is no justification –  definitely there was fraudulent activity in the operation of the Bank,” added the banking expert.

In the analysis of another expert, “All the points mentioned here have possible material impact on the balance sheet and profit and loss of the bank,” said  Abdulmenan Mohammed Hamza, an accounts manager at the London-based Portobello Group Ltd. He further indicated that this is clearly seen in both the old and the revised reports which reflected reduced profit after tax – down from 388 million Br to 312 million Br and earnings per share (EPS) down from 50 Br to 40 Br.

The President of CBO, after being informed of the outstanding issue, has not been accessible for a response, up to the time of Fortune’s going to press.

CBO is the only Ethiopian bank working with cooperatives that are associations of farmers. Cooperatives hold a 56pc share of the Bank.

Established in 2004, the Bank has expanded its assets to 11.4 billion Br from 7.3 billion Br. It now has 160 branches with 50 new ones to be opened this year.


Published on Feb 01,2016 [ Vol 16 ,No 822]



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