The Development Bank of Ethiopia (DBE) has reported a 21.6pc decline in net profit to 323.8 million Br for the second year in a row as the Non-Performing Loans (NPLs) ratio of the Bank increased from 16pc to 25pc as of June, 2016/17. The state policy financier registered a profit that is three times lower than the target set to be achieved in the current fiscal year.

DBE has come up with a significant drop in profit performance in a year when other commercial banks are showered with a massive increase in profits. The underperformance has been mainly due to a surge in the NPLs ratio.

“The level of NPLs at DBE is very concerning. It is consuming a huge chunk of the Bank’s income,” said Abdulmenan Mohammed, an expert with over 15 years of experience in auditing and finance in Ethiopia and the United Kingdom. “Despite loans that are given at generous terms, they are costing DBE so much due to high non-repayments, which hasn’t been observed in the banking industry.”

The new report comes within a year when the Bank assigned a new president, Getahun Nana, who was in a disagreement with four veteran vice presidents (VPs) over the NPL ratio. The VPs left their posts due to this case according to sources, although Getahun links the case with the new restructuring strategy of the Bank. During the same period, the Bank went through a lot of restructuring and reshuffling in the directorial and managerial positions.

The Bank disbursed 5.3 billion Br in loans during the past fiscal year, underperforming its plan by threefold. It also accounts for half of the loans approved during the past fiscal year.

The underperformance of the disbursement is linked to a shortage of foreign currency, temporary termination of agricultural loans and the unrest in some parts of the country, according to the report.

“Besides having difficulties in disbursing loans to small and medium-sized enterprises (SMEs), it was very difficult to get foreign currency and buy machinery for lease financing programmes to the same groups,” said Hailu Misganaw, acting director of communications at DBE.

More than 57pc of the loans is disbursed to the manufacturing industry, mainly to the textile industry. It is followed by 1.7 billion Br and 265 million Br of financing made to SMEs and agriculture.

“The fact that loans to the agricultural sector were terminated for more than half a year has also resulted in a decline in loans during the past fiscal year,” Hailu said.

On the other hand, Abdulmenan suggests that the management of DBE seriously review its credit management system as well as the pricing of loans.

“Loan disbursements have been a huge disappointment. DBE needs to look into the whole process of loan disbursement budget preparation as well as the actual disbursement procedures,” he said. “This disappointing performance could be due to set unrealistic targets.”

Currently, the total outstanding loans of the Bank have reached 33.8 billion Br, of which 9.9 billion Br of loans are held by foreign investors. Among the loans extended to foreign investors, about 26pc is given to Turkish investors, followed by India and Israel, with a share of 18.5pc and 7.4pc, respectively.

Founded in 1909, DBE has more than 2400 employees, who work at its 110 branches across the country. The Bank has targeted to raise loan disbursements of 112.3 billion Br by 2020.

On the other hand, the asset utilisation ratio of the Bank has declined from 0.79pc to 0.6pc. This, according to analysts, indicates the Bank has earned a lower amount of return from its assets in the past fiscal year compared with the 2015/16 fiscal year.

Currently, the total assets of DBE have reached 53.1 billion Br, which is the second highest in Ethiopia next to the Commercial Bank of Ethiopia (CBE), whose assets stand at 465.8 billion Br.

Source : AddisFortune