16 September 2017

Ethiopia: High-Level Committee Finds Zero Irregularity Yet NPL Soars

An effort by a high-level committee to investigate a violation of law led to a surge in non-performing loan (NPL) ratio of the Development Bank of Ethiopia (DBE) bore no fruit, sources close to the case disclosed to Fortune.

The high-level committee which was formed with the order from the president, Getahun Nana, assessed the causes for the surge in NPL ratio related to the breaching of the policy, regulations and directive of the Bank.

The decline of profit, tarnishing of its name and erosion of public trust on the bank are the major issues that prompted the establishment of the committee, according to the president's statement during the annual management meeting held last fiscal year to assess the performance of the bank.

"The Bank does not have a problem of policy, directive, procedure and guidelines, rather a failure to implement them properly," said Getahun during the meeting.

Comprising of senior management members of the bank including Getahun and representative from the legal department, the committee took part in the assessment process that was finalised last month. The committee was formed under the office of the President.

The investigation was expected to identify procedures that have been compromised while providing loans and holding responsible individuals accountable. But no legal and administrative measure was taken on any of the employees of the Bank, according to sources close to the case.

"The findings of the assessment were neither disclosed nor presented to the board of directors of the Bank," according to a source close to the case.

Provision for doubtful loans of the bank is very alarming, according to Abdulmenan Mohammed, an independent banking expert with one and half decades' experience.

NPL ratio of the Bank has increased from 16pc to 25pc during the past fiscal year ended on the first week of July. This is a quite jump from 8.6pc six years ago.

"The investigation was a bit late as it should have started a couple of years ago when the level of bad loans suddenly surged," Abdulmenan commented. "The surge in bad loans could plunge the bank into losses, affect its lending ability and undermine its financial position."

Moreover, it tarnishes the name of the bank, according to Abdulmenan.

This issue was a source of disagreement between the president and four VPs of the bank, resulting in replacing them with new. After one and half months of reshuffling its top-level management team, the Bank also restructured its mid-level management.

The alarming NPL surge inevitably pulled down the net profit of the Bank by 21.6pc to 323.8 million Br during the past fiscal year.

The Bank has to identify the loans that could be turned into healthy ones and renegotiating with the borrowers new terms that would enable repayment of the loans while the businesses are afloat, According to Abdulmenan.

"Foreclosure and selling of securities to recover loans would be the last resort," he said.

Founded in 1909, DBE has more than 2,405 employees working at its 110 branches across the country.

Getahun did not respond to the enquiry sent from Fortune until the paper went to print.


Can Improved Ethiopia-Eritrea Relations Stabilise the Region?

After 20 years of hostility, Ethiopia and Eritrea have resumed diplomatic relations. On 8 July Ethiopia's Prime… Read more »

See What Everyone is Watching

Copyright © 2017 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.

AllAfrica publishes around 800 reports a day from more than 140 news organizations and over 500 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.