Ethiopia: Npl of commercial banks soars due to Tigray conflict

Commercial banks in Ethiopia are seeing an increase in non-performing loans (NPLs) as clients based in the besieged region of Tigray are unable to repay their loans.

Since war broke out between the forces of the defunct Popular Front for the Liberation of Tigray (TPLF) and the Ethiopian National Defense Forces (ENDF) nearly three and a half months ago, business has stalled in the region. banks being forced to close their doors for more than a month.

The ongoing fighting in the region, coupled with economic uncertainty, has made it difficult for banks to collect loans and monitor funded projects, a situation that increases their non-performing loans. Some banks even face difficulties in finding out where their customers are, according to sources.

In particular, the banks which have a relatively higher presence in Tigray have been strongly affected by the conflict. This includes the Commercial Bank of Ethiopia, Wegagen Bank, which was closely linked to the Tigray Rehabilitation Endowment Fund (EFFORT), a conglomerate of TPLF-owned enterprises, and the Lion Bank, which was in the process of building its own. headquartered in Mekelle.

“All of us have been affected by the fighting. No bank is immune to the problem,” Getachew Solomon, chairman of Lion Bank, told The Reporter.

The two largest private banks, Dashen and Awash, have also been hit hard by the fighting and are expected to see an increase in bad debts as they have been unable to collect loans from the region.

“Although it is now unthinkable to collect loans in the region, the banks are between a rock and a hard place. Some of us don’t even know where our money collected by branches in the region is, ”said a senior executive working at one of the private banks.

Before the conflict, Wegagen Bank’s NPL was 5.3%, the highest of any commercial bank and three percentage points higher than the recommended rate of the National Bank of Ethiopia (NBE), while Lion’s was 4.6%, the fourth highest in the industry.

Sources said the figure will now increase by more than twice the previous amount.

Of more than 6,124 commercial bank branches across Ethiopia, 10% are located in Tigray, where all financial institutions are present.

The region, home to about six percent of the country’s population, accounts for six percent of agricultural production and eight percent of export earnings.

Despite concerns over an increase in bad loans, Cepheus Capital, a private equity firm, said a major system-wide NPL problem also does not appear to be showing up in private banks (aided in part by the abstention of the central bank). “Even the likely rise in NPLs this year should be what most banks can cope with given their weak Initial Starting Positions (NPLs), good provisioning levels and the continued growth of their loan portfolios. . A credit crunch is therefore not underway. The horizon either for 2021 or for 2022 “, explained Cepheus Capital.

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