Ethiopia: Massive State Loans Threaten CBE

opinion

Bags 17.9 billion birr profit

The more than 400 billion birr loans the Commercial Bank of Ethiopia (CBE) extended to state enterprises and the government in the past years has posed a threat to the biggest bank in Ethiopia.

A document obtained by The Reporter reveals that the government owes CBE 412.5 billion birr. The document indicates that 386 billion birr was dispersed to state enterprises namely Ethiopian Electric Power, Ethiopian Electric Utility, Ethiopian Sugar Corporation, Ethiopian Railways Corporation and the Ethiopian Shipping and Logistics Enterprise. A big chunk of the loan more than 200 billion birr was provided to the Ethiopian Electric Power which used the money to finance mega hydro power projects including the Grand Ethiopian Renaissance Dam. CBE has also advanced 46 billion birr loan to the Ethiopian government.

Sources told The Reporter that the government is not able to service the staggering 412.5 billion birr loan. "In the past five years the government has been able only to pay the interest." Every year the government is paying up to 25 billion birr interest to the bank. "If the government is not going to repay the loan CBE would be in the red," sources warned.

Bacha Gina, president of CBE, admits the potential risk posed by the state loans. "It is true that if loans are not recovered they would pose threat to any bank. But we hope that the loans extended to both the public and private sector will be recovered," Bacha told The Reporter.

He said that some of the state enterprises have not started repaying the loans as they have not yet been operational. "Projects, which are under construction like GERD and sugar projects, have not started paying their loans because they are not finalized yet. We expect that the enterprises would start paying their loans once they finalize the projects," Bacha said.

The giant state-owned military conglomerate, the Metals and Engineering Corporation (MetEC) recently requested the government to write off a 57 billion birr debt. Sources close to the matter wonder as to how these ailing state enterprises would repay the mountains of debt. The government has disclosed its plan to privatize six state-owned sugar projects. There are a total of 13 sugar projects with a total debt of some 70 billion birr.

Bacha said that the fact that a debtor requests for write off does not mean that he will be relieved off. "The bank knows how to go about it. We extended the loans to the state enterprises with guarantees from the Ministry of Finance. So we do not think that it will pose a big threat to the bank," he said.

Sources told The Reporter that Prime Minister Abiy Ahmed's administration has established a national committee that evaluates the current status of the CBE and the Development Bank of Ethiopia (DBE) which is in a much worse financial position. DBE's non performing loan has reached 40 percent.

CBE, which presented its annual performance report yesterday, indicated that it managed to reduce its non-performing loan from six billion birr (3.5 percent) to 3.5 billion birr (1.8 percent).

The executive management of the bank, which held a two-day staff meeting at the African Union Nelson Mandela Hall, announced that the bank made a gross profit of 17.9 billion birr in the 2018-2019 budget year. Last year the bank earned a profit of 10.9 billion birr.

CBE collected additional deposit of 89.4 billion birr. The bank mobilized 67.9 billion birr deposit from the private sector. The total private deposit reached 368.1 billion birr. The bank's total deposit has reached 541.2 billion birr.

With regards to foreign currency earnings, Bacha said the bank generated 268.7 million dollars from export and 3.9 billion dollars from remittance. According to him 2.1 billion dollars has been transferred from the National Bank of Ethiopia. The bank generated a total of 6.3 billion dollars.

CBE has dispersed 129 billion birr loan in the fiscal year that ended in June 2019, out of which 22.2 billion went to the private sector. The bank collected 68.8 billion birr loan in the budget year.

The bank's total asset has increased by 145 billion to 712 billion birr. The bank opened 157 new branches and the total number of branches reached 1,444. CBE, which has branches in neighboring Djibouti and South Sudan, is planning to open more overseas branches. The bank has 37,894 employees.

Employees of CBE complain over salary increment. Some employees of the bank told The Reporter that a new organizational structure has been studied by the previous management of the bank. While the employees were waiting for a salary scale adjustment the new management implemented the new organizational structure without a salary scale adjustment. Baffled by the government's decision many senior employees including management members left the bank to join private banks. "Recently 12 directors left the bank," employees of the bank told The Reporter.

Bacha admitted that the employees were demanding for salary increment. He said that some employees left the bank in search of better pay. "We were unable to make salary scale adjustment when we implemented the new organizational structure in April 2019. The government has put such a direction at a national level so I would not comment on that."

However, Bacha said the management has undertaken a study on salary increment and other benefits. "We are under preparation to present it to the board and get it approved. We hope that it would help us to retain the existing staff and if possible we will rehire those who have left," he said. "We will address the salary issue," he added.

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