David Malingha Doya
5 October 2008
Nairobi — A management shake-up is underway at the East African Development Bank after the institution posted a shocking $8.9 million loss for 2007 on the back of three successive years of profitability.
According to sources at the bank, director-general Godfrey Tumusiime's contract, which expires at the end of this year, will not be renewed. The same fate awaits director of finance Michael Opande whose contract expires at the end of the year, sources added.
Although details of the departure of senior managers are still scanty, sources said that their leaving is related to the poor financial performance that triggered panic in the markets last week.Last week, we reported that Passwell Shapi, a former director of operations at the bank, left prematurely.
The last time EADB witnessed a mass departure of senior managers was in 2003, when directors of operations, business development, human resource and research left after the bank posted losses of $10 million in 2002.
The bank's financial report, whose publication has been overdue for months, unveils the institution's worst financial performance since 2002.
Mr Tumusiime is out of the country on official duty but from past dialogue with The EastAfrican, it is an open secret that his job was at stake long before the news of the bank's financial performance leaked.
Apparently, the 59-year old banker's proposal to dedicate $12 million for a venture capital fund -- upon which his stay at the bank partly depended -- had board members divided.
Going by the 2007 financial report, Tumusiime's proposal was overruled, with some casting him as an aggressive banker who had underestimated the risk of going into venture capital funding in this region, given EADB's history of bad loans.
EADB's 2007 loss is attributed to non-performing loans of $20.9 million, up from $1.5 million in 2006. It is noteworthy that EADB's liquidity ratio also dropped from 1.63 in 2006 to 1.39 in 2007.
A comparison of the trend of collections over the past three years shows inconsistency. In 2005, the bank collected $56 million from its borrowers, but this figure dropped by 32 per cent to $38 million in 2006.
It then shot up by 60 per cent to $64.9 million in 2007, although this income was significantly eroded by bad loans of $20.9 million in the same year.
It remains to be seen whether EADB will meet its target of disbursing at least $100 million for projects by 2010, given last year's poor performance underlined by declining amounts of money disbursed to borrowers -- from $89 million in 2006 to $61.5 million in 2007.
This performance is also expected to slow the bank's recapitalisation programme by member-states $45 million for on-lending and $90 million capital injection to run equity and housing projects in East Africa.
Following news of the bank's financial performance, some officials there expressed concern about the panic that erupted in the markets, with investors asking how the bank could make such huge losses after returning to profitability recently.
Financial analysts expect investor-confidence in EADB to drop and negatively affect the rating of its bonds, even though these are critical instruments the bank needs to mobilise resources in local currency.
The continued uncertainty over the future of its management is also likely to keep investor confidence low. With little indications of a significant change in management let alone a bold and aggressive turnaround strategy, investors will naturally be less enthusiastic about EADB's debt instruments.
EADB has floated bonds in the Uganda, Kenya and Tanzania, over the past three years, with interest rates pegged to 182-day Treasury bill rates of the respective member countries. It remains unclear whether it will issue more bonds in the coming year.
Additional reporting by Bernard Busuulwa
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