Every nation does have their own peculiar schemes to be triumphant over problems created locally. As part of their efforts to make dreams real, establishing banks at various levels is a case in point in this regard. For instance, Development Bank of Ethiopia (DBE) was established to promote the national development agenda through financing and technically supporting viable projects in the nation which play an important role in bringing about foreign currency, creating job opportunity for citizens, reducing poverty as well as generating income tax.
As learnt from special government bond proclamation, for the past several years, the Development Bank of Ethiopia (DBE) has been supplying middle and long term loans for projects involving in wide irrigated agriculture, agro-processing, manufacturing, mining development, and other related sectors.
It was revealed that despite bank’s great role to play in fulfilling its national responsibilities, increment of Non-Performing Loans (NPLs) and reduction of the net capital of the bank are witnessed drastically due to number of factors that are recently challenging it.
As stated in the proclamation, capital adequacy is one of the methods of measuring financial well-being for banks. As of June 2018, net capital of the bank (6.24%) is below international standard especially the minimum rate (15%) set by Association of African Development Finance Institutions (AADFI) and National Bank of Ethiopia.
A draft proclamation, which has targeted at issuing special government bond worth ETB 21.020 bln. Birr, has been prepared, and now it is at the hands of Revenue, Budget and Finance Affairs Standing Committee of House of Peoples’ Representatives for further scrutiny. The proclamation is believed to raise the capital of Development Bank of Ethiopia.
According to the report of the house, last week, the standing committee and the DBE held a discussion on the importance of the draft special government bond proclamation.
During the discussion DBE’s President, Haileyesus Bekele stated that the proclamation has become a core legality to deal effectively with the loan regulations; to standardize operational aspects of the bank along with the policy matters. Plus to that, the proclamation is assumed to be a potential means to enable the nation to recover government and public financial assets.
He also reported that due to the NonPerforming Loan (NPL) which accounted for 16 bln. Birr and should have been processed by the bank; bankruptcy has been witnessed to the government and to the nation in general. This situation squeezed the anticipated 7.5 bln. Birr capital of the bank only to 2.9 bln. Birr, he disclosed.
The proclamation will resolve financial economy as per the international debt equity ratio standard, according to him. The Standing Committee appreciated all the initial endeavors of the bank. Besides, the committee noticed the bank shall apply all the appropriate measures of policy, operational rules and structural things for better outcomes. It also insisted that the bank shall also take legal steps on the entities that caused NPLs on the nation’s assets.
According to the proclamation, Ministry of Finance is empowered to issue special government bond with the amount of Birr 21,020,000,000 (twenty one bln. twenty mln.); and utilizing the special government bond issued in accordance with this proclamation is imperative to raise the capital of the Development Bank of Ethiopia.
The special government bond shall bear no interest, and it shall be redeemed in 14 years period after a grace period of five years. And also, no stamp duty or any other tax shall be levied on any transaction or document relating to the special government bonds, as stated in the proclamation.
It was shown on report by DBE that the bank’s demand to raise its capital is 21.02 bln. Birr which will be pumped to fully solve DBE’s capital adequacy and debit equity ratio problems.
The Ethiopian herald June 26,2020
BY ABDUREZAK MOHAMMED
