Since his appointment on January 10, 2012, Admassu Y. Tadesse has been serving as the president of the Eastern and Southern African Trade & Development Bank, aka the Preferential Trade Area (PTA) Bank, of the Common Market for Eastern & Southern Africa (COMESA). A father of two from his wife Anna Getaneh – an international model active in Ethiopian charity work – Admassu chairs the PTA, which was established in 1985. In this interview with Binyam Alemayehu, EDITOR-IN-CHIEF, Admassu shares his views about the last 18 months under his leadership, the expanding the geographical horizon of the PTA and the new partnerships with Ethiopian businesses. Excerpts.
Fortune: It has now been a year and a half since you took your position in the PTA. One of the responsibilities you assumed at the time was developing the PTA’s five-year corporate development plan. This was meant to take the Bank to a new height.
Admassu Tadesse: It has indeed been an exciting 18 months. We have undertaken the very exciting process of developing the strategy and plan for the next five years of the Bank. The plan was launched in January this year. It has a number of cornerstones. The first thing is to ensure that the momentum is maintained.
Q: Are you pleased with the Bank’s performance against the plan so far?
In fact, the first thing I did when I took this position was to make sure that the results of my first year were outstanding. This is because during transitions there are typical institutional elements that come into play. I was determined to make sure that the transition was as smooth as it could possibly be. I clearly set out my targets, including – penetrating new markets, developing new products, ensuring that the Bank began to recover much of the written off loans that I found were off the books, but believed I could bring back to the Bank.
The staff and the management rose up to the occasion and we closed our first year with record results; 35pc year-on-year growth on the balance sheet, which is the highest that the Bank has ever produced. Profitability on a year-to-year basis has increased by 51pc. That is well above the growth of the balance sheet.
Part of that success was driven by record levels of new recoveries, some of which were written off seven, eight or nine years ago. We found new ways of clawing back all that capital, in order to make sure that the shareholders remain happy.
Even though my mind was very much on the plan and the new strategy, I also understood that success needed a lot of rethinking, a lot of new initiatives, a lot of mobilisation of new shareholders and expanding the geographic mandate of the Bank to other areas. That was my long-term and medium-term agenda; but, I knew that I would be in two minds at the same time.
Q: The PTA has succeeded in its capitalisation and mobilisation efforts. It was planning to push the figure to more than one billion dollars. The figure now stands at 1.3 billion dollars, which is a big success. But a glance at the non-performing loans (NPLs) figure reveals that it is at 4.7pc. This is quite significant given the fact that it used to be 60pc in the past. But comparing that 4.7pc with other multilateral banks, it is nonetheless still higher.
The first senior appointment I made at the Bank was the director for risk management. We have also now appointed a head of credit risk, in addition. We now have a fully fledged risk management department with a head of credit risk that is on par with the business department. That is the first thing we have done. We have also created a new screening stage in the process of origination of transactions. This is to say that businesses, before they go far with any new deal, have to come to a new screening committee within the first two to four weeks.
This is part of our stiffening up a little bit on the kinds of transactions that the Bank wants to consider. That is one of the reasons why the non-performing ratio has come down. It stood at five point something last year. Now it is down to about 4.5pc.
The reality of the market is that we have got a lot of low income countries. These countries are amateurs.
When you look at the global multilaterals, whether it is the World Bank, the IFC or the African Development Bank, they have a market that is very diverse. Their market base includes middle income countries that have much lower risk profiles. We haveMauritius, which is an investment grade rated country in our market. Everybody else is below investment grade rate. We work with countries in an environment that creates a natural predisposition towards a riskier market.
Q: How much further do you expect the risk portfolio to go down, say within the next five years?
By the end of this year, we will be around four percent in terms of NPLs. For us, anywhere between four and three would be a reasonable amount. Actually, under five is the benchmark. As long as we keep it under five, it is okay.
Remember, our profitability, as well as our return on equity, is very high. In any case, everybody now realises that the risk profile of the Bank is coming down. There is a mismatch between the price in the bonds and the risk profile of the bonds. We see a lot of demand coming.
That is why we see the price of the bond going up. We had an upgrade in our rating. Thus, the credit rating in the Bank has moved from stable to positive. That also happened last year.
Q: The Moody Investment claims that although the PTA Bank has grown tremendously in terms of capitalisation and mobilisation, its assets do not reflect its shareholder base. Would you agree?
If you just look at this year, between January and June 2013, we have raised the highest amount of new equity. We have had our current shareholders’ pay and close to 20 million dollars of new and fresh equity to the Bank. Between 2007 and 2013, the Bank has managed to increase its paid-up capital by almost 100 million dollars. I am not talking about retained profits, I am talking about fresh equity injections from African shareholders. In the first six months of this year, we have 20 million dollars of fresh equity coming in. This is a sign that the Bank’s paid-up capital is growing.
In 2007, there was a general capital increase. On top of that, we have been retaining our own earnings. Even last year, we made a 51 million dollar profit. This year, we are expecting to go over and above the 20 million that came in between January and June.
We are going to see new fresh equity coming into the Bank between July and December. We have managed to mobilise another 50 million dollars of fresh equity, just between June and December this year.
We have also changed the Charter of the Bank. When we did so we said COMESA is good; but, this region stretches fromLibyaandEgyptin the North all the way down toSouth AfricaandMozambiquein the South. Because of institutional divisions over time, COMESA was never able to fully absorb all the countries of eastern and southernAfrica.
We had some countries in southernAfricathat did not want to join COMESA and rather joined SADEC. We said let us go back to the initial visions of the founders of the Bank. They called it – “Trade & Development Bank of Eastern andSouthern Africa”. We said the Bank’s membership will be composed of all the countries in eastern and southernAfrica. The potential membership of the Bank goes from 19 to 26 countries. To join the Bank, they have to invest and buy shares. But, at least now from a policy point of view, they are eligible to join the Bank. That was a very big change, because it was not easy to change the constitution of an institution. It was the hardest challenge I have faced within the past eighteen months.
Q: Does the claim by the Moody Investment hold any water?
I think Moody’s analysis is very pointed. It is also very focused. They are looking at the historical journey of the Bank. It is only now, in the past two years, that the implementation level of the general capital increase has gone up to 90pc. If you go back two years, it was sitting at around 50pc. If there was a new assessment done today, I think they would have a slightly different view.
Q: When you first took this office, you said that the challenge was not to take your career to a new height, but that of the institution and its staff. Given the five-year corporate plan and the various plans that you devised, do you find the work environment in the PTA to be permissive?
I think the PTA Bank is a great institution. It is an entrepreneurial bank and not as bureaucratic as the big multilaterals. It has got very good staff, and great momentum behind it.
My experience in the PTA Bank has been outstanding. I have found it to be very fulfilling. It has been responsive to the new trusts, the innovations I have been introducing and the reforms that I have brought to the Bank.
I am very pleased and found a very enabling environment to advance the strategy of the Bank and to grow the business even more.
Q: The African Agricultural & Trade Investment Fund, in partnership with the Deutsche Bank, is one of the projects you seem to be most passionate about. But, it seems it is too early for African companies to start reaping its benefit. Do you share this view?
Our partners inGermany, both the Deutsche Bank and the KFW Group, had confidence in us and they enabled us to be their first partner to grow on that fund. They did so because they believed we are the right partner for them.
I was delighted. The reason I am passionate – as you rightly described – is because I was able to be their first client. That is why I agreed to give testimonial to their annual report. I think, in the process of making this decision, there are always views and counterviews.
What matters in the end is where it settles, because the debate is a natural process. What matters is that they believed in us and we have proven ourselves, as we have invested almost all of that money now.
Q: Although the PTA Bank has invested money in some Ethiopian institutions, such as Ethiopian Airlines, and may do so with Habesha Cement, Ethiopian business are still not benefitting much from the Bank. Where does the problem lie?
What I can tell you is that what we have already signed is just the beginning of a very exciting pipeline developing. There is much more in store. In the months and years to come, you will definitely hear more transactions taking place with Ethiopian clients, state-owned enterprises and the private sector as well. I think the outlook is very positive.
Q: Yes, but Ethiopian businesses are still not benefitting.
It is also a question of time. We have launched a new trust of business development inEthiopia. If you look at the number of missions we have mounted toEthiopiain the past 12 to 18 months, it is more than what we ever had before.
We are now planning it meticulously, since we want to reach out. There are so many discussions taking place with all sorts of prospective clients for the Bank.
The nature of this business is that we are not a deposit taking institution. We are a corporate trade investment type bank. For this kind of operation, there is always a lag effect from your business development and origination efforts to the time you see the deal being booked. That is because there are lots of negotiations.
I can tell you confidently that there are at least two to three other transactions that are worth more than what we have signed this month or two that can potentially give us another two or three million dollars of new exposure in Ethiopia.
Q: What are the sectors in which the new partnerships with Ethiopian businesses will be commenced?
They are in transport, trade and coffee.
Q: The PTA Bank, since its establishment, has been based inBurundi, with some regional offices. But considering the fact that Addis Abeba is the seat of the AU and the diplomatic capital of Africa, how come you have not yet opened offices here, while you have regional offices in Nairobi, Harare and, recently, in Mauritius?
Up until now there has never been an interest or a demand for the Bank to have a presence here. But, I am sure that this is something the Bank and the Ethiopian government will consider in the future.
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