By Muluken Yewondwossen
The financial heavy weight bank, Commercial Bank of Ethiopia (CBE), drops disbursing new loans to public firms by 94 percent. Savings also drop by 56 percent in the first quarter of this fiscal year, in contrast to the same period of last year.
The financial powerhouse, which controls about half of the market share in the banking sector, revealed that it had significantly lowered the amount of new loans it was disbursing to public firms in the first quarter of the 2023/2024 fiscal year, a move that was applauded by President Abie Sano.
The government’s main financial arm, the commercial bank, has been arguing that funding the public sector reduces its ability to compete in the market.
To this end, the state giant’s leadership suggested easing some of the burdens placed on it so that it can restructure itself to properly compete on the market with interest rates like its private counterparts.
As per the directives of the government, CBE’s loan disbursement is directed towards the private sector, as assessed by the macroeconomic team and recently declared by the government, according to Abdurehman Eid Tahir, CEO of Ethiopian Investment Holdings (EIH), a sovereign wealth fund (SWF) in charge of managing 26 large public enterprises including CBE.
He stated that, in the past, the public sector received the majority of loan disbursements; however, this is no longer the case, “For instance our enterprises loan proportion is very minimal.”
“The government created the SWF to resemble the private sector, which forces our businesses to compete in the market,” he continued.
CBE has disbursed 44.6 billion birr in additional loans in the first three months of the 2023/24 fiscal year, up 116 percent over the same time in the 2022/23 fiscal year, but only reaching 63 percent of its target.
According to Abie, the majority of the loan was given to state businesses that had a significant impact on CBE rather than private sector players. This let CBE escape the market and competition and resulted in it losing its private sector clientele.
Public companies obtained loans from the bank with the lowest interest rate, but they failed to make regular loan repayments. According to him, throughout the past two years, there has been a significant decline in the quantity of loans granted for state enterprises.
The financial sector guru Abie said, “In the first quarter of last year, the bank disbursed 5.9 billion birr loan for public enterprises, which is 356 million in the current quarter.” When comparing the amount to a similar period last year, the percentage was at 6 percent.
According to the president, “In total, CBE has released 44 billion in the quarter, compared to 15 billion the previous year. Of the stated amount, 22.8 billion birr was allocated for fertilizer, which we considered to be a private sector loan. Its noteworthy that due to the late start of fertilizer purchase, it was 5.4 billion a year ago.”
The private sector obtained a commercial loan of 21 billion birr that was nine billion birr a year earlier. According to Abie, “The bank’s biggest challenge is still the loan that was disbursed for the public enterprises in the prior years.” According to Abie, the majority of foreign exchange is allocated to key commodities that are mostly managed by government agencies.
The state bank allotted USD 2.6 billion for the import of products and services throughout the quarter. Petroleum imports accounted about half of the foreign exchange indicated. Eleven percent went for public projects; the remaining nine, eleven, and 19 percent went toward government transfers, public projects fertilizer and the private sector, which either manages government projects or spends its own foreign cash has accessed 11 percent of the foreign currency that CBE allocated in the period.
In terms of foreign exchange generation, the bank was able to obtain USD 829 million within the specified timeframe.
Ninety five percent of the objective was reached by CBE in the first quarter with revenue of 31.7 billion birr, an increase of 6 percent over the previous quarter.
Profit before taxes was 2.7 billion birr, in a similar vein. The performance has increased by 39 percent over the previous year’s profit and only 57 percent of the objective has been reached. The CEO of EIH stated, “CBE should work on cost minimization to meet the target.”
“As a sector, savings have fallen by 56 percent from the same period last year, but they have only reached 14 percent of their aim. One of the issues is the state of the economy,” the CEO stated.
In terms of non-performing loans, it demonstrated encouraging performance, allowing it to decline by 33% from the previous year and reach 96% of the goal for the time frame.
According to Abdurehman, “CBE is the government’s financial arm that handles projects and public enterprises, which has big contributions for EIH portfolios.”
Abdurehman informed Capital stating, “We are evaluating to expand the capital” in reference to CBE’s situation, which is not at what it should be. The strategy calls for increasing CBE’s capital from its present 40 billion birr to 250 billion birr over the next five years.
