The coming to conclusion of ongoing mega projects has loosened the shoulders of public owned financial giant, Commercial Bank of Ethiopia (CBE) which is now optimistic of the future as it continues in stride to capitalize on its maximum potential.
Two months ago, during the onboard summit of the Ethiopian Investment Holding (EIH), the recently created sovereign wealth fund which accommodates 27 public enterprises, Abie Sano, President of CBE, expressed his views by stating that the government has to consider viewing the bank as a commercial bank as opposed to a policy firm.
He elaborated that treating the financial enterprise as a policy entity is affecting the activity of the bank and its competitiveness.
“I think the government is understating our demand but when alternatives are eroded the government is forced to seek access to finance for its projects through CBE,” Abie told Capital.
“We demand for at least the government to reduce its portfolio from us,” the president explained.
He said that the government is competing on the bank resource, “currently about 90 percent of CBE’s credit goes to the government at 9 percent interest rate.”
Currently, the average saving interest rate being 8 percent; and when factoring year on year inflation, the credits given to governments is becoming a stretch for CBE.
“For the private sector we provide credit with 14 to 16 percent interest rate. If the government’s portion is minimized we can provide loans with 12 percent interest rate for all that would have significant impact on the market stability and make the bank more profitable,” he added.
Those that have secured 90 percent of CBE’s credit are from 14 public enterprises.
According to Abie, if demands from the public enterprises reduce, CBE could provide finance for up to 30,000 customers; in addition to expansive impact regarding new customers, resource mobilization, and with other wide market segment benefits.
“At the current stage CBE is sacrificing a lot. The resource mobilization expands on compound rate. We are lacking this compound growth,” the CEO elaborated, adding, “I advice the government to reduce its portfolio, which will help to boost the bank’s operation.”
He said that the change will directly benefit the government since the bank is owned by the government.
“For instance, if the government was to take at least 50 percent out of the loan portfolio, it will become more beneficial to its customers since more resource can be mobilized,” the financial guru said
Despite the pubic financial giant raising its concern about the issue, Abie also stated that some realities force the government to use the bank as an alternative, “Accomplishing projects like sugar millers, mega energy projects or debt settlement for railway projects have to be done.
We are advising the government to look for additional alternatives but we understand that it is not easy.”
Currently, mega projects are on their accomplishing stage that would create an opportunity for CBE. There are also efforts from the government to reduce its demand from CBE and to expand its private sector portfolio yearly.
“In the previous experience, every year the government commenced huge projects even without detail studies, while for the past few years the government has not commenced new projects, which is a big hope,” he said.
“Currently, we are fully engaged on very few projects that are on the final stage. For instance project like Grand Ethiopian Renaissance Dam will be done in the coming three years time, it is a big relief for the bank and on the return they will generate resources rather than demanding from us,” he expressed his hope that the government portfolio will be proportionate with the private sector in the very near future.
“We hope that in the coming three years the government portfolio will erode to a half and we will be able to engage in the private sector on a wider range,” Abie concluded.
As of June 30, 2022 the financial giant’s asset stands at 1.2 trillion birr, and CBE’s deposit mobilization had reached 890.1 billion birr increasing by 21 percent from 735.2 billion birr of June 30, 2021.
In the financial year, the fresh disbursed loan and advances was 179.2 billion birr of which the private sector share was 34 billion birr.
Regarding profit, the bank secured 27.5 billion birr which is 16.3 percent higher than the projection set and 43.9 percent higher from the preceding year.