Tuesday, August 16, 2022
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    InterviewGrowing big in a volatile neighborhood

    Growing big in a volatile neighborhood

    Date:

    Admassu Lemma Tadesse is an economist who is also a well-regarded banker who has been appointed to lead the recently-rebranded Trade and Development Bank (TDB) of the Common Market for Eastern and Southern Africa (COMESA). With extensive experience as well as impressive academic credentials in finance, Admassu obtained his bachelors and masters degrees from the London School of Economics and Political Science, Wits Business School and the University of Western Ontario. He was also trained in advanced management and banking at the Harvard Business School and INSEAD, the France-based graduate school of business. Admassu was reelected president and CEO of the TDB (formerly PTA Bank) for the next five years. Since he assumed office in 2013, TDB’s capital has tripled to USD four billion from around USD one billion. Expanding its services, TDB is soon opening a regional hub office in Addis Ababa. Despite its growth trajectories and efforts to upgrade its standards, the volatile region where the bank operates could adversely impact the bank’s prospects,. Birhanu Fikade of The Reporter briefly chatted with the Admassu to learn more about TDB. Excerpts: 

    The Reporter: The PTA Bank has recently been rebranded as TDB. Why now? Why not five years ago? 

    Admassu Lemma Tadesse: If you look at the strategy and the five-year plan that we set in motion in 2013, we had already decided to rebrand the bank. Back then I was  just assuming office. What I did is that I told my team we all need to start fresh. We need to start with marketing. It can be seen as hype. It can be seen as noise but a good one. It was considered to be the cherry on the cake; not the cake itself. Hence, my instruction to the team was, yes we need to rebrand and renew our identity or our trade name. For the good reasons we knew that we have to. We said let’s work on the building blocks. Let’s cream the cake, and the rebranding will be the cherry. That is why I have been elected for a second term and I didn’t want to really start my first term on a marketing mission. I wanted to reform the bank deep in terms of capital restructure, risk management, fund mobilization by creating a dedicated specialized treasury, growing the bank’s geographic scope, attracting new institutional shareholders, and establishing new funding partnerships. All these were the bits and pieces of baking the cake. I told the people, you know substance always wins the day. Hence, we have worked from the bottom up and tried to deal with the real issues. I said let’s work to bring growth and generate more confidence in the bank, let’s attract capital because that is what the bank is about. Then once we have realized all these very attractive ideas and innovative trusts, we can rebrand. Therefore, we have tripled our balance sheets, and the bank now has USD four billion in capital. We have shareholders from unusual sources. It’s one thing to get a government capital. It’s another thing to get money from pension-funding insurance companies. We started paying dividends. For thirty years, we had never paid any dividends. Now it’s almost two-and-a-half years since we have started to pay dividends to our shareholders. As I always say we as a third-world development bank, we need to be a little bit modern. If we say we want to attract institutional capital, as opposed to tax-payers’ capital, we need to do things a bit differently because institutional capital has its own requirements. These requirements are not just on returns but also on governance, risk management and all sorts of things. But what we did was that we focused on all of that and now we have ten more months of the five-year plan. We have met all our targets. We have gone a long way. The shareholders have been very positive and my team and I have been given another five-year term because we did very well. It is now time to put the cherry on the cake.

    One of the restructuring projects undertaken by the bank relates to its finances. Can you tell us more about that?

    These days banks are much more than lending partners. They are very concerned. If you have special interest in capital issues, size of capital, how much you leverage yourself, how much you are diversified in terms of your asset base, risk management and governance structure, the bank will provide assistance. This is the 2016/17 period and we have to do this with the Organization for Economic and Cooperation and Development (OECD) countries mainly in North America and Europe, which face many banking problems. The broad view on regulation and governance of banks has changed drastically, and everybody is trying to catch up. The crisis we have seen in the banking sector of North America and Europe has resulted in a change of views across the world. When you raise money by issuing bonds or by attracting more shareholders, the level of analyses and scrutiny is much more different today than it has been in the past. We have grown quite strongly over the past five years. As I said we have been able to register a 300-percent growth. That all happened while we are not a local currency-based bank. We only have managed to do all that because we have also raised share capital. Ours is not an over-leveraged bank. We are continuing to work very closely with various rating agencies just to get their viewpoints. We are owned mostly by low-rated shareholders. Most of them are African sovereigns. Many of the countries are not rated. The Democratic Republic of the Congo is not rated. They don’t issue bonds. Malawi is in the same category. There are a whole bunch of countries out there not rated. The best countries in our region are Kenya and Ethiopia. I don’t think Tanzania is rated. I don’t think Mozambique is rated. These are well below Ethiopia and Kenya. Countries are rated with single B or less. With the exception of Mauritius, which is BBB (a highly rated country), many of the countries that have been rated are low rated. So we must think in terms of raising the standing of the bank by raising more money cheaply and we can only lend very cheaply. Cost of funding is as much an issue as access to finance. Many people try hard to have access to finance but the next issue is the cost of that finance. You can offer somebody a loan. No problem with that. But the terms of accessing the funds can be quite prohibitive. You are burdening me with a high cost. That is why institutional development is very important. You have to create a great institution with a strong framework, have best practices, and seek and listen to sound advice. But we still live in a volatile region. There’s no avoiding that. As much as I want to raise the standard of the bank, I live with the harsh reality of failing and failed states all around me.

    In Burundi, your operations have been suspended due to the unfolding political crisis, is that right?

    Even if we haven’t yet frozen our operations in Burundi, we don’t think it is feasible because that country has a lot constraints and challenges at the moment. We are not active in Somalia. We are not active in Eritrea, either and we are also not able to work with countries that face very difficult macro-economic situations. But there are other countries that have their own problems, and which we have found ways to help. We are able to help Malawi and Sudan. These are countries that are also quite fragile economically. But we help them a lot. That’s our world, and we can’t shun countries that we were set up to serve. We have to live with that. That’s the high priority of this position or this job. We are ambitious. Most of my managing staff are capable ones who can work at global institutions. They can work for Barclays Bank, Goldman Sachs or the World Bank or the IMF. But they chose TDB with a professional ambition to make a difference. We strive to do everything intrinsically under our control within the institution; but you can never control your market. The market is what it is. That is one of the paradoxes we face. In our bank, we say we are a world-class African financial institution. You can be world class in terms of your internal design. But reality outside is different. We cannot run away from the reality. At the end you are always subject to the reality.

     Back in June, you signed a memorandum of understanding (MoU) with the Ministry of Foreign Affairs of Ethiopia to set up a regional hub in Addis Ababa that will serve the Horn of Africa. When will the office be up and running?

    The decision we made to open an office in Addis was not the bank’s alone. There is the COMESA Reinsurance Company and the idea was to open a joint office. Then we were expecting the African Trade Insurance Agency to join us as we are all born out of the COMESA. As you noted, we signed our host agreement with the Ministry of Foreign Affairs back in June. But COMESA Reinsurance signed the host agreement only recently. Hence, we didn’t want to leave our sister institutions behind. The whole idea is to work and walk together hand-in-hand. All the instruments have now been signed. Everything has been done. We have identified an office area. We are working on procuring equipment and vehicles. Everything is underway. We have appointed a director. There has been a lot of progress. It’s just a matter of fitting out the office. It’s a done deal. Our insurance company as well. We are settling around the Olympia neighborhood of Addis. We will start small, and we will grow up later. We are asking for a plot of land from the government to put up a building in the future.  We do this in a spirit of partnership. We don’t want to move fast. I didn’t want to open the office in August or September when our sister institutions have not yet concluded their host agreements. The truth is that I am an Ethiopian running the bank and I have the host agreement signed as early as August. I was working with sister institutions to help them get host agreements signed. We work hand-in-hand. I didn’t want to come in early not to send a wrong signal. Partnership should be exercised in such a way. One might move faster than the others, but we need to move together.

    You have mentioned projects such as the Pullman Hotel brand receiving USD 20 million for their operations in Ethiopia. Who else is securing funds from your bank?

    We have many in the pipeline. We have Gatepro Metal Engineering PLC with some close to USD 20 million. We have a coffee business contract that will have USD 20 million. We have many clients here. But it is better for us as a financial institution not to name each of our clients. We have to honor business confidentiality, and I hope you appreciate that. We’d like to share but at some point it might not be appropriate to reveal all the clients.

    Can you say how much finance the bank will make available for projects in Ethiopia?

    We have projects in the pipeline. We basically show appetite. We are ready and willing to finance. But in the end the demand comes from the country. We are on the supply side. The real issue is the regulation. The country has a strategic framework on allowing foreign borrowing because our lending is based on foreign currency. The country has to manage foreign loans and we have to respect that. We work with countries that are sensitive to their realities. We don’t want too be fast and we don’t want to move in a way that doesn’t help. We don’t want to rush. It’s too irresponsible from the lending point of view just because you have the capacity you don’t channel. In a single budget year we have extended USD 250 million to Kenya at one go. Even though we are based in Kenya, there are many financial institutions and banks. It’s a fairly developed country in terms of the financial sector when compared to others. But all of a sudden conditions might require us to move fast. The same applies to Ethiopia. There can be an occasion one day when the reality changes and institutions might be require to lend large amounts of money.

    The first time we met a few years ago, one of the things you told me was that the bank is willing to allocate half a billion dollars for borrowers in Ethiopia. Is that offer still good?

    Yes, it is still available; yet it has to go through negotiations. You know finance is very dynamic and flexible. We at the TDB are ready to give half a billion dollars at once to Ethiopia. In the example I just mentioned, we extended USD 250 million to Kenya. It’s released within one year. It depends on the countries’ demand and interest. Some countries have many alternative sources and some have their own schedules and plans. We are having talks with the National Bank of Ethiopia on prospective outcomes. There are many promising outcomes expected. Had Ethiopia followed a similar financial regulatory system like other countries, we would have released the fund by now. We are ready to release the money.

    There was a plan to launch a diaspora bond, with Ethiopia as one of the beneficiaries? Is that idea still evolving?

    \It’s one of the innovative approaches we have under discussion. We hope it will soon become part of the services we provide.

    Is the Ethiopian government interested in a diaspora bond?

    I think the government of Ethiopia is open-minded. But they haven’t made their positions known about the diaspora bond yet. 

     

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