Ethiopia: Non-Performing Loan Choke Zemen's Profits 

A staggering 1,384pc increment in Non-Performing Loan (NPL) took its toll on Zemen Bank's net profit after tax, during the 2012/13 fiscal year. The 94.1 million Br net profit after tax showed only a nine percent increment compared with the previous year.
The net profit growth, however, is higher than the two percent rise registered by the Bank during the 2011/12 fiscal year. This is despite the profit before tax figure remaining relatively similar to the previous year.
Zemen's profit before tax only went up by four percent, to 123.8 million Br, in 2012/13, compared with the previous year. Due to the reduction in the profit tax bill, from 39.6 million Br to 29.66 million Br, and a surge in interest and non interest income, the profit after tax jumped by nine percent, however.
The Bank's interest income on loans, advances and investment in treasury bills and government bonds has increased by 45.98pc to 150.11 millionBr.At the same time, the non-interest income items, such as gain on foreign exchange dealings, commissions, service charges and other income, have also increased by a staggering 55.6pc to 254.93 millionBr.
The management of Zemen attributes such performance to the kind of clients it has.
"We have a lot of exporters as clients. These exporters are usually engaged in a booming sector, such as flowers," Tsegaye Tetemke, president of the Bank, told Fortune.
These achievements, however, have been hugely undermined by the soaring provision of doubtful loans and advances.
Zemen has maintained a provision for doubtful debts of 98.6 millionBr.This is unusual in the financial industry.
The causes of this deterioration in loan quality reflect a combination of external and internal factors, Ermias Eshetu, vice president and head of the Marketing & Corporate Services of the Bank, told Fortune.
"The Bank's aggressive entry into certain fast-growing sectors, such as export and manufacturing businesses, contributed to this," says Ermias.
The Bank's NPL ratio rose from around three percent, in 2011/12, to almost eight percent. This is mainly on account of three loans - provided to a car assembly plant, a sesame exporter and a cattle exporter - that ceased making payments during the year, according to the annual report of the Bank presented to shareholders during the general meeting, which was held at the African Union headquarters on September 21, 2011.