The Development Bank of Ethiopia (DBE) released its 2012/2013 annual report this week. The report revealed DBE failed to loan out 16pc of the 6.37 billion Br it aimed to disburse. This is despite approving its highest ever advance of 8.15 billion Br during the recently ended fiscal year.
The Bank earned a net income of 491 million Br for the year. This is a whopping 32.3pc more than its target and 26.3pc more than its performance during the 2011/12 fiscal year.
The annual report, which was approved by the board of directors in Bahir Dar last week, showcases the DBE's achievements. These include its jump in net income. It also highlights key indicators where it missed the mark.
The Bank, which aims to support the Growth & Transformation Plan's (GTP) targets, gives long-term loans at an interest rate of 8.5pc to projects involved in priority sectors, such as agriculture, industry and extractive industries.
The DBE surpassed its target of approving 7.9 billion Br worth of loans. The largest portion of the approved loans (71pc) was for companies engaged in the industrial sector. These received 5.8 billion Br in total, an amount 143pc higher than what the DBE had aimed to loan out to the sector. Companies, such as Saygin Dima, which got over one billion Birr of loans approved last year, were the major beneficiaries.
Agriculture, however, saw only 17pc of the total loans approved, receiving 1.3 billion Br. This amount is 57pc below the DBE's target.
Sometimes the target overestimates the number of companies that will request loans, according to Esayas Bahere, President of the DBE.
Unlike loan approvals, disbursements fell short of their targets. Usually, the DBE expects a borrower to raise 30pc of the project cost on its own. This is to be placed in a blocked account within six months of getting the loan approval, before disbursement from the Bank begins. Close to a billion Birr out of the DBE's target disbursement remained in the hands of the bank at the end of the fiscal year.
"When projects operational schedules are delayed, it also holds up disbursements," Esayas explained. The DBE's disbursements are dependent on the completion of certain phases of the project.
Over the past fiscal year, only 66pc of the projects followed the implementation schedule. This is far below the DBE's target of 90pc.
On a more positive note, the Bank's loan collection rate hit 99pc of the 2.57 billion Br target. However, DBE has yet to reach its desired Non Performing Loan (NPL) ratio of 5.62pc. Instead, this figure currently stands at 8.62pc.
The spike in NPL is due to the short-term loans, which the DBE extended to textile companies, according to the report.
"Although short-term loans are not our specialty, we stepped in to provide a solution for the capital shortages these companies seemed to experience," Esayas told Fortune.
The decline and fluctuation in the international price of cotton, textile and yarn, however, has led some to default on payments, the report explains.
"Usually with short-term loans, if there is even one default, the entire loan amount goes into the NPL balance," Esayas stated.
Since the DBE is part-owner of a business project until loans are repaid, it advises borrowers and works on an implementation schedule alongside them.
Only 31pc of the Bank's projects operated successfully, though DBE had set a target of 39pc, according to its report. The report cites difficult market conditions, management issues, weak technical support and project design problems as contributing factors to the low performance.
The DBE has been in charge of selling bonds for the Grand Ethiopian Renaissance Dam (GERD). Here too, its aim to collect 2.3 billion Br from bond sales was not achieved, reaching only 60pc of the target, or 1.38 billion Br. The reasons put forward by the report are efforts to sell bonds were not aggressive enough. This is in addition to a lack of awareness on bonds within the general public, as they are a relatively new financial instrument within Ethiopia's economy.
By the end of the GTP period, the DBE plans to disburse a total of 38.67 billion Br to the industrial and agricultural sectors, with 83.4pc meant for the private sector.
Esayas stated that he is pleased with the performance over the past fiscal year.
"On most of the indicators, we got close to the target. I would thus say that we are on track for achieving the GTP plans," he told Fortune.