Addis Fortune (Addis Ababa)
Issayas Mekuria
24 December 2007
Addis Ababa — The Public Financial Enterprises Agency (PFEA), an entity supervising state-owned financial institutions, instructed the Commercial Bank of Ethiopia (CBE) to reschedule loan payments for defaulters that are still able to service their debts.
The Bank, which has one billion Birr in Non-Performing Loans (NPLs), was also told to immediately foreclose properties of defaulters that are not ready to pay their debts, and put those assets on the auction bloc, sources disclosed.
"Banks are reluctant to foreclose and auction properties of defaulters," sources at the PFEA told Fortune. "This will no longer continue."
Eyob Tesfaye (PhD), director general of the PFEA, made the decision after the bank submitted its plan for recovering defaulted loans to the Agency two weeks ago.
The three state-owned banks - CBE, Development Bank of Ethiopia (DBE) and Construction and Business Bank (CBB) - are trying to recover close to four billion Birr in defaulted loans disbursed in the last 10 years. Of the three, DBE has the largest amount of bad loans, totaling 2.5 bln Br. The CBB is the best performing state bank in this category, with just half a billion Birr in NPLs.
"These banks, especially DBE, are in danger as they have a slim possibility of recovering these loans," an industry observer told Fortune.
The PFEA two weeks ago requested that the three banks divulge the amount of bad loans they have, the identities of the defaulters and their plans for recovery. Though all have submitted what was requested, the Agency has re-requested DBE to submit another, claiming that the first was inadequate.
According to sources, DBE only disclosed 15 of its 30 defaulters.
"They cannot sit in an ivory tower; they should go and recover public money, Eyob told Fortune. "At the same time, the customers cannot munch the best part of the meat and then walk away freely."
Eyob, however, declined to confirm or deny the amount of bad loans held by the CBE or the instructions reportedly issued by his office to the bank.
The CBE, which had NPLs totaling five per cent of its portfolio two years ago, is currently struggling to lower its NPLs down from 12pc.
"The Agency instructed the CBE to make a loan reschedule agreement in accordance with the directive of the National Bank of Ethiopia (NBE)," a senior management member at the CBE told Fortune. "It is a decision intended to safeguard the government's welfare by focusing on the recovery of the loans."
DBE, which requested to re-report its current default situation, has a five per cent of its portfolio in default. CBB, which has made fewer bad loans, has not been given any orders from the Agency, according to the source.
"DBE's defaulters are few because it does not have many customers given that it requires large collateral like buildings and huge residences," a source at the Agency told Fortune.
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