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    BusinessCentral bank considers putting Tigray bad loans off balance sheet

    Central bank considers putting Tigray bad loans off balance sheet

    Policy Bank’s NPL in Tigray reach 10 billion birr

    The National Bank of Ethiopia (NBE) is deliberating on taking bankers’ non-performing loans (NPL) in Tigray off the banks’ balance sheets. The bank is working with the Ethiopian Bankers Association (EBA) to identify projects and loans caught up in the war in northern Ethiopia.

    Leading banks, especially the state-owned Commercial Bank of Ethiopia (CBE), Wegagen bank, and others, has been reporting significant loans extended for Tigray up until the war broke out in November 2020. They were unable to collect because of the conflict. Except for over 10 new banks that have joined the market in the last two years, all commercial banks have a presence in Tigray, accounting for seven percent of the over 8000 bank branches situated across the country.

    “All the big banks have been pushing the central bank to take the NPL off their balance sheet. Finally, the central bank started working on the issue. It is not cancelling the loans but excluding them from the banks’ balance sheets because it is complicating our financial statements,” a bank president told The Reporter.

    CBE reported close to two billion birr loans in Tigray were lost. Wegagen bank’s NPL stood at 2.9 billion, while its loss in the Tigray war was 1.2 billion birr. These figures were reported in the first year of the Tigray War, and the figures probably have gone up as the war has reached almost two years now.

    However, none of the commercial banks’ losses match the Development Bank of Ethiopia’s (DBE) loss in the Tigray war. The policy bank requested the central bank to take 10 billion birr of NPLs off its balance sheet.

    “Our NPL in Tigray now is 10 billion birr. We requested the NBE to put it aside from our balance sheet. The central bank delayed to do so. The loans might be paid in the future,” said Yohannes Ayalew (PhD), president of DBE.

    Led by Ahmed Shide, Minister of Finance, the Public Enterprises Holding Administration (PEHA) is evaluating the annual performance of DBE.

    DBE’s NPL in Tigray jumped from 2.4 billion before the war to 10 billion birr currently. Out of DBE’s total NPL, Tigray alone constituted 12 percent of it. The bank has to allocate 4.1 billion birr provision for the Tigray NPL.

    As a result, DBE’s profit for the year shrank from 7.8 billion to 3.7 billion birr. The banks’ net profit for the year is 3.3 billion birr, reducing the 600 million birr in dividends paid to the government. Still, the 3.3 billion birr profit is the biggest among many banks’ performance for the just ended fiscal year.

    “If the NBE takes the 10 billion birr NPL off its balance sheet, its NPL ratio drops to 12 percent, profit surges by 4.1 billion birr, and the bank can focus on offsetting its performance in peaceful parts of the country,” Yohannes said.

    Yohannes received appreciation from Ahmed and PEHA officials, for rescuing DBE. A year before Yohannes took over in 2020, DBE’s NPL stood at 40.9 percent. At the time, the House of People’s Representatives (HPR) was also discussing closing down the policy bank.

    The bank’s NPL dropped below 15 percent, which is the average threshold as per African development banks’ standard.

    The war in Tigray affected the policy bank in mobilizing project funds, according to the president. In particular, the European Union withheld EUR 70 million approved for DBE after the war broke out.

    Currently, the bank is preparing to float project shares for the youth. It has already certified 28,000 graduates and entrepreneurs, who can buy shares of DBE projects. Once the stock market is launched, which is expected in 18 months, those shares will be traded on the stock exchange, according to Yohannes.

    The bank has recovered and rehabilitated 207 projects. Currently, the policy bank is also negotiating with potential investors who are interested in buying Ayka Addis, which has been up for sale for years but repeatedly failed to fetch buyers.

    “We are currently negotiating with a new potential buyer. They are local investors. Since last year, we have been negotiating with another potential buyer, but it failed because they lacked adequate financial capacity. We hope this time we can sell Ayka Addis,” Yohannes told The Reporter.

     

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