Development Bank’s Bad Loans Reach High

Recorded last at 25pc, the Bank’s non-performing loan has now reached 39.4pc

Bad loans at the state policy bank, Development Bank of Ethiopia (DBE), ballooned to an alarming rate of 39.4pc in the last fiscal year.

Recorded previously at 25pc, the Bank’s non-performing loan (NPL) portfolio during the past fiscal year stood far higher than the standard set by the National Bank of Ethiopia, a 15pc maximum. Just half a decade ago, it stood at under 10pc.

Low productivity of commercial farmland that the Bank extended loans to, intermittent rainfall, the forex crunch, management problems and political unrest in the country are reported to be the primary causes of the accelerating NPL ratio, according to a performance report by the Bank.

“The soaring NPL rate is only a temporary problem,” Haileyesus Bekele, the recently appointed president of the Bank, said. “We are ready to disburse 20 billion Br more in this fiscal year, as soon as foreign currency is available.”

Although the bank planned to disburse 59 billion Br, it only disbursed 39 billion Br in loans and advances as a result of the forex crunch. Investment projects need financing within the margin of 65pc to 70pc in foreign currency.

If the foreign currency problem stabilises, we’re hoping that the NPL will be offset by our revised lending interest of 12pc [9.5pc for exporters that manage to accomplish 80pc and above of their targets],acording to the bank.

The loan policy introduced to deal with this problem increases the lending equity contribution from foreign investors to 50pc from the previous 30pc two years ago.

By contrast, equity that domestic investors are required to raise has been reduced by five percent to 25pc. For investors that invest in industrial parks, the rate has been further reduced to 15pc, to encourage them to participate in the industrial development zones.

“The company has to begin considering whether its situation is recoverable or not,” Alemseged Assefa, former vice governor of the central bank, told Fortune. “The Bank’s leaders also should sit down with the central bank to get a more preferential agreement about the foreign currency issue.”

Last fiscal year, the Bank generated 66.4 million dollars in foreign currency, less than half of what it generated the previous year.

Net profit though has increased by around 13pc to 367 million Br, still far lower than its profit performance of 678 million Br just four years ago.

While the Bank’s assets have grown by 47pc to 78 billion Br, its borrowing has more than doubled to 70 billion Br.

The state policy bank has passed through a whirlwind of problems, including the abrupt resignation of President Getahun Nana, last March.

It has also rolled out reforms to deal with lacklustre performances in profits and NPL rates, including providing loans to financial institutions. It signed a quarter of a billion Birr loan agreement with four private banks and four microfinance institutions this year.

Commercialised agriculture and agro-processing, priority areas for the Bank, consumed 70pc of its available loans. Extension of credit to businesses in the manufacturing and mining industries made up the rest.


Published on Sep 29,2018 [ Vol 19 ,No 961]



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