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Even though the ratio of non-performing loans (NPLs) at the Development Bank of Ethiopia (DBE) has been sharply soaring, the bank’s management is optimistic this will change now that several problems have been addressed.
The policy bank that mainly supports developmental projects in the country has been going through rough times when clients defaulted on loans they received for development projects mainly involving rain fed commercial farming.
At a press conference held on September 28 to review the past fiscal year’s performance the management of the bank disclosed that the bank’s NPL ratio grew to almost 40 percent for the year.
They explained that in the 2016/17 fiscal year ratio of NPLs stood at 25 percent, which at the time was the worst performance the bank had experienced. This fiscal year, however, NPLs escalated even more to 39.4 percent, according to a report presented by DBE management.
“The National Bank of Ethiopia’s standard is that NPLs not to be higher than 15 percent, which is in line with other international trends,” Haileyesus Bekele, the recently assigned president of DBE said.
He believes that if the hard currency shortages are solved then NPLs will decrease significantly.
Over the past year NPLs have grown rapidly primarily because of problems with rain fed agriculture investments and the shortage of hard currency. Power outages and damage to investments during periods of political instability were secondary reasons for the increase as well.
Haileyesus told Capital that DBE will take action including legal measures to get its assets however he declined to spell out in detail what this would entail.
The bank has been affected by the failure of rain fed commercial farming mainly in Gambela region.
Haileyesus said that when it came to rain fed agriculture investment, 471 projects throughout Ethiopia secured loans from the bank and out of this number 25 percent invested in their business but failed to profit.
There are 298 projects or 60 percent that DBE claims they partially invested in which also contributed to the growth of the NPLs, according to the president.
“The remaining 56 projects were not totally invested in and the bank is taking actions to solve the problem,” he added.
He was critical of how the bank handled rain fed agricultural investments. “They were applied without undertaking a detailed and scientific feasibility study,” he added.
“Some of the rain fed investments failed because there was no study on the plantation like sesame at Gambela, which failed because it had too much rain and the land was not  suitable again because it was not properly studied,” he told Capital. He said that lack of coordination with relevant bodies has been another problem with the rain fed projects.
The bank has also hinted that it may find ways to improve its capacity by reforming the existing loan policy, hiring an international consultant and increasing the bank’s capital.
“Currently, our paid up capital stands at 7.9 billion birr but the bank’s capital adequacy ratio has reached its maximum rate of 15 percent as per the central bank rule,” he said.
“Because of this and handling the level of the investment growth volume the bank capital will definitely grow this year fiscal year,” he explained.
For the past fiscal year the bank has dispersed 39 billion birr from the total of 59 billion approved. DBE has total assets of 78.2 billion birr and has registered a net profit of 367 million birr after taxes and provisions. A year ago the profit stood at 324 million, but in its heyday in the 2014/15 fiscal year the profit reached 678 million birr.