The Development Bank of Ethiopia (DBE) failed to recover 900 million birr in loans it provided to projects in Tigray as a result of the yearlong conflict in the region. Consequently, the bank has declared them Non-Performing Loans (NPL).
“The loans could not be recovered due to the law enforcement operation,” President of DBE, Yohannes Ayalew (PhD) told The Reporter.
The loans were extended especially to sesame commercial farmers and manufacturing projects in the region, which have been affected by the conflict.
According to the Tigray Emergency Recovery Plan strategy introduced by the Ministry of Finance (MoF) back in June 2021, the status of investment projects in the region was categorized into three.
The first are those that have been completely looted or damaged. The second are those that can resume operation if supplied with infrastructure, LC and working capital and the third, are those that need re-investment, including replacing machineries, recruitment and rescheduling of loan service deadlines.
Nonetheless, the status is expected to further deteriorate as the conflict has prolonged and expanded since then. The bank has two kinds of clients: corporate and SMEs, which take above or less than 45 million birr in loans, respectively.
Despite the surge in its NPL in the north, DBE managed to recover 3.6 billion birr of NPL from other parts of the country. The bank collected a total of eight billion birr during 2020/21 fiscal year.
“We did a profound job in one year. We are taking measures on all defaulting clients, without exception,” said Yohannes.
The bank’s NPLs has currently dropped to 26 percent, down from the 35 percent, when Yohannes took charge in September 2020, just a month before the war in Tigray broke out on November 4, 2020.
The former chief economist and vice governor for the National Bank of Ethiopia (NBE) immediately introduced fundamental reforms to turn the bank around. Particularly, NPLs of lease financing scheme plummeted from 35 percent to 13 percent, following major overhauls taken in the scheme.
As a result, DBE registered 3.3 billion birr profits after tax, becoming the third top profit making bank after CBE and Awash. The bank’s capital also surged from 28 billion birr last year to 31.3 billion birr currently.
For the current fiscal year, the policy bank has allocated 19 billion birr for fresh disbursement. Even though its NPL threshold is 15 percent, the bank envisages maintaining NPL below five percent in the next two years, according to Yohannes.