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CBE investing heavily on corporate bonds

The outstanding loan that the Commercial Bank of Ethiopia (CBE) has provided through the purchase of corporate bonds has reached 152.7 billion birr, the National Bank of Ethiopia’s annual report noted.

Although there is no secondary bond market in Ethiopia, government bonds, treasury bills and corporate bonds are growing to be preferred instruments of investment for financial institutions and pension funds in the country.

Among these instruments, corporate bonds were the least known among private commercial banks. Nonetheless, the country’s largest state-owned financial institution, CBE, is currently investing heavily on corporate bonds.

According to the annual report of the National Bank of Ethiopia (NBE) released on February 15, 2016, corporate bonds in the order of 48.3 billion birr was purchased by CBE during the 2014/15 fiscal year. The amount stated is 50.2 percent higher than the bond that CBE has purchased in the previous year.

CBE has accumulated 152.7 billion birr worth corporate bond holdings, since the commencement of this corporate bond trade, a couple of years ago. Among the corporate institutions that are accountable for total worth of CBE’s outstanding corporate bond holdings, Ethiopia Electric Power, the state-owned power monopoly, takes the lion share— 74.5 percent.

While the remaining 15.4 percent of the bond goes to the Addis Ababa City Administration which borrowed mainly for its public housing projects, according to NBE’s annual report.

The remaining 8.5 percent goes to Ethiopian Railways Corporation and the rest 0.7 percent outstanding bond holdings belongs to regional states, the report detailed.

Last week, CBE has announced 6.7 billion birr profit for the first half of current fiscal year.

According to a press release the bank sent to The Reporter last week, the opening of 35 new branches, bringing the total to 1,000 is another crowning achievement of the bank in the stated period. The statement also mentioned that the bank has lent 39.4 billion birr though direct advances and NBE’s bond purchases. However, it did not show the amount of its outstanding corporate bond holdings.

In a related news, NBE’s annual report revealed its own mounting direct loans to the central government. According to the report, the outstanding claim of NBE on the federal government has reached 92.1 billion birr. NBE’s direct advance that is feared by economists to cause inflationary pressure on the economy, accounts for 90.3 percent of the total outstanding loans advanced by NBE to the government, according to the report. The remaining 9.7 percent outstanding loans represent NBE’s bond holdings.