Central Bank plans to remove Tigray’s bad debts from its balance sheet | The journalist

Policy Bank’s NPL in Tigray reaches 10 billion birr

The National Bank of Ethiopia (NBE) is considering removing non-performing loans (NPLs) of Tigray bankers from banks’ balance sheets. The bank is working with the Ethiopian Bankers Association (EBA) to identify projects and loans caught in the war in northern Ethiopia.

Major banks, especially the Commercial Bank of Ethiopia (CBE), Wegagen Bank and others reported large loans to Tigray until the outbreak of war in November 2020. They could not cash in because of the conflict. With the exception of more than 10 new banks that joined the market in the past two years, all commercial banks are present in Tigray, accounting for 7% of the more than 8,000 bank branches located across the country.

“All major banks have pushed the central bank to remove the NPL from their balance sheets. Finally, the central bank has started to work on the issue. It is not a question of canceling the loans but of excluding them from the balance sheets of the banks because it complicates our financial statements,” said a bank president. The journalist.

The CBE reported that nearly two billion birr in loans to Tigray had been lost. Wegagen Bank’s NPL was 2.9 billion, while its loss in the Tigray War was 1.2 billion birr. These numbers were reported in the first year of the Tigray War, and the numbers have likely increased as the war has lasted nearly two years now.

However, none of the losses of the commercial banks match the loss of the Development Bank of Ethiopia (DBE) in the Tigray war. The political bank asked the central bank to remove 10 billion birr of NPL from its balance sheet.

“Our NPL in Tigray is now 10 billion birr. We have asked the NBE to remove it from our balance sheet. The central bank was slow to do so. The loans could be repaid in the future,” said Yohannes Ayalew (PhD), President of DBE.

Headed by Ahmed Shide, Minister of Finance, the Public Enterprises Holding Administration (PEHA) assesses the DBE’s annual performance.

DBE’s NPL in Tigray has increased from 2.4 billion before the war to 10 billion birr currently. Of DBE’s total NPL, Tigray alone constituted 12%. The bank must allocate a provision of 4.1 billion birr to the Tigray NPL.

As a result, DBE’s profit for the year fell from 7.8 billion to 3.7 billion birr. The banks’ net profit for the year is 3.3 billion birr, which reduces the 600 million birr in dividends paid to the government. Still, the 3.3 billion birr profit is the largest among many banks’ performance in the financial year just ended.

“If the NBE removes the 10 billion birr of NPL from its balance sheet, its NPL ratio drops to 12%, profits increase by 4.1 billion birr and the bank can focus on offsetting its performance in the regions. peace of the country,” said Yohannes.

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

The bank’s NPL fell below 15%, which is the average threshold by the standard for African development banks.

The Tigray war affected the political bank in raising funds for the project, according to the president. In particular, the European Union withheld 70 million euros approved for DBE after the outbreak of war.

Currently, the bank is preparing to launch project shares for young people. It has already certified 28,000 graduates and entrepreneurs, who can buy shares in DBE projects. Once the exchange launches, which is expected in 18 months, these shares will be traded on the exchange, according to Yohannes.

The bank recovered and rehabilitated 207 projects. Currently, the political bank is also negotiating with potential investors interested in buying Ayka Addis, which has been up for sale for years but has repeatedly failed to find 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 this failed due to lack of sufficient financial capacity. We hope this time we can sell Ayka Addis,” Yohannes said. The journalist.

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