Cooperative Bank of Oromia S.C., has registered a 531.8pc increase in its provision for doubtful debts and other assets to 228.4 million Br under the helmet of its top executives who were suspended by the National Bank of Ethiopia (NBE) in August, 2015.
The sum is considerably higher than last year’s and than that of all banks which have released their financial statements. This is the updated version of the report which initially indicated that the Bank had a 322pc increase to 152.4 million Br but which was later rejected by the central bank.
NBE’s rejection followed its inspection, which revealed that there were more bad loans that had been overlooked and more provisions that were kept for those loans.
The additional provisions have also brought changes in some of the segments within the Bank’s report. These included reduced profit after tax – down from 388 million Br to 312 million Br, and reduced earnings per share (EPS) from 50 Br to 40 Br.
Deribie Asfaw, is the new president of CBO, who came to the job following the suspension of former president Wondimagegnehu Negera and his management team by the National Bank of Ethiopia (NBE) because of malpractice.
Deribie said that interest free loans had been given, some, even without collateral. He mentioned a specific case where a branch in Jijiga had lent 50 million Br without any collateral and without the knowledge of the Bank.
The manager who was responsible for that specific branch is now being held in custody.
“The branch manger was acting irresponsibly,” said Deribie.
Despite the malpractice and drastic action taken by the central bank, CBO incurred total expenses of 745 million Br and total income amounted to 1.2 billion Br.
This shows that a sizeable number of loans and receivables went sour, commented Abdulmenan Mohammed Hamza, an analyst working as accounts manager at the London-based Portobello Group Ltd.
CBO disbursed loans and advances of 6.56 billion Br, an increase of 61pc and mobilized deposits of 7.368 billion Br, an increase of 52pc. The loans to deposits ratio surged to 89pc from 66.86pc. Such a dramatic increase has been rarely seen in the banking industry. The loans to deposits ratio for the industry as of 2015 is about 63pc.
Deribie admitted that given the uncollected loans the ratios were out of the range required by NBE. Non-performing loans increased from 1.8pc to 2.8pc.
“There were borrowers who could not settle their debts,” he added.
Another major problem was that the bank had received too much money, 1.936 billion Br, from customers through applications for letters of credit (LC), import bills collection (IBC), and telegraphic transfers (TT), but it was unable to deliver the hard currency.
“We usually processed LCs or TTs after forecasting the currency inflow in the market. However, the decline in exports at the national level created a gap in fulfilling our commitments,” said Deribe.
This led Abdulmenan to comment that CBO’s refunding customers would also have an impact on their profit/loss ratio.
“We are now in a good position of fulfilling the commitments,” responded Deribe, who has only been three weeks on the job, leaving a vice presidential post he used to hold with the Commercial Bank of Ethiopia (CBE).
Deribe graduated from Addis Abeba University in 1998 with a degree in Economics. He has worked in the banking sector for 18 years, eight of them in managerial positions at the Commercial Bank of Ethiopia. He served in his last position as Vice President of Customer Account Transaction Service from 2011 to 2015.
His focus, he told Fortune, is to build the human resource and technology capacity of the Bank.
As the only Ethiopian bank working with cooperatives, CBO also looks forward to widening its customer base. Cooperatives hold a 56pc share of the Bank.
Established in 2004, the Bank has expanded its assets to 11.4 billion Br from 7.3 billion Br. It now has 160 branches with 50 new ones to be opened this year.
CBO has increased its paid up capital by 36pc to 864.8 million Br and has a capital adequacy ratio of 17.6pc.
“This indicates that CBO is well capitalized,” said Abdulmenan.