|
|
Ethiopia: State Audit Firm Deems CBB's Provisions Substandard
 |
|
|||||||||
|
||||||||||
Addis Fortune (Addis Ababa)
28 April 2008
Posted to the web 28 April 2008
Michael Chebud
The state owned Construction and Business Bank (CBB) is locked in an internal feud with its auditor, the state owned Audit Service Corporation (ASC), over the adequacy of provisions the former held to secure its Non Performing Loans (NPL) for the financial year 2007.
The audit firm says the 78pc provision CBB held for its 238.6 million Br loans' loss is not enough.
Senior management members of the state owned Bank do not accede with their auditor's stringent opinion.
"The provision we held is the highest as compared to any other bank in the industry," Addisu Haba, president of the Bank, told Fortune. "The Audit firm used an international standard which hardly applies to our case."
The ASC conducted its audit in accordance with the International Standards on Auditing, issued by the International Auditing and Assurance Standards Board of the International Federation of Accountants. This standard stipulates that banks should hold 100pc provision in order to secure all the NPL they sustain.
"Ethiopian bankers hardly accept this as it significantly slams the profits on their balance sheets," says a veteran banker. "And they have a point."
The CBB reported an 80.8 million Br profit before taxation for the year 2007, and its NPL, with no provisions held, is a staggering 51.3 million Br. The Bank's profit before tax would have dropped to a mere 29.5 million Br had it dished out a 100pc provision for its NPL, according to an industry analyst.
Executives at the Bank argue that the sale of collaterals held for the loans advanced to clients would return the remaining 22pc of its NPL.
"From the total collaterals we held against loans advanced, 99.9pc are buildings," said Addisu. "And 85pc of these collaterals are in Addis Abeba."
The President wonders why the ASC could not be certain that the bank he manages would secure the money through the sale of these collaterals.
The CBB is an offspring of the Housing and Savings Bank (HSB), a.k.a Mortgage Bank, which was established in 1975 through the merger of the Imperial Savings and Home Ownership Association and Savings and Mortgage Corporation of Ethiopia. Both were nationalized at the onset of the military regime. Following the adoption of a market driven economic policy of the country and the ensuing economic reform programmes initiated by the incumbent government in 1992, HSB was reconstituted as CBB in 1994 with an authorized and paid up capital of 71.8 million Br and 63.9 million Br, respectively.
The Bank now faces a fundamental challenge from its auditor, ASC. The state Audit firm does not disagree that the Bank has held collaterals higher than what the National Bank of Ethiopia (NBE) considers prudent.
"We stick to the international standard even though they have met what the central bank requires," a source at the state owned ASC told Fortune.
According to a directive issued by the NBE, what is considered as the average net recoverable value of collaterals is 67pc, which means Banks have room not to hold provision for up to 33pc of their NPL. CBB claims its 22pc is much lower than what the regulator requires even though it has not met the international standard.
The total assets, loans and advances, as well as deposits of the CBB grew from 689.8 million Br, 510 million Br, and 356.9 million Br, in 1994 to 1.8 billion Br, 1.3 Billion Br, and 1.1 billion Br, respectively, by the end of June 2007. With its 893 employees, the Bank renders services in 27 branches in the country.
|
Its auditor, ASC, has been auditing state financial institutions such as the Commercial Bank of Ethiopia, the Development Bank of Ethiopia and the Ethiopian Insurance Corporation for close to 34 years.
| |||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
| Copyright © 2008 Addis Fortune. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections -- or for permission to republish or make other authorized use of this material, click here. | |||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
| Make allAfrica.com your home page | RSS Feed | |||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
| Top | Site Guide | Who We Are | Advertising | Search | Subscribe | |||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
| Questions or Comments? Contact us. Read our Privacy Statement. | |||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
