Commercial Bank of Ethiopia
Financial Risk Management- Risk
Monitoring, Review of Top 200 & Large
loans and NPL Summary Reports for
the Quarter Ended December 31,2020
Credit Risk Monitoring Report
2
Purpose of the Report
The general purpose of is to assess the credit portfolio risk profile of the bank ,
promptly identify loans which exhibit deteriorating performance and to initiate BoD
and EMC timely corrective actions.
Limitations
Incomplete and late delivery of input data from respective organs (MIS &
Resource & Credit Management);
Variation of figures from different sources for same accounts
3
On top 200 borrowers review Collateral amount(#34 borrowers) and type(#49)
Credit Risk Profile
Total Asset=903.59 billion
Total LA & bond =682.64 billion
Key Ratio Indicators
• Total LA to TA
 27.7% ( 1.02% from September)- Low risk
Key Risk indicators
• Total Cr to TA(including bonds)
 75.53% ( 2.07% pt from September)
Total Loans and Adv.
 76.14% Including EGTE A/R 5.38Bill
to Total Assets
• NPL to LA
NPL to Total Loans
and Adv.
 4.51% ( 0.29% from September)
Total Loans and Adv.
( 2.73% from Dec. 2019)
to Total Deposit
 Total LA to TD
Provision for Loan
Loss to NPL
 36% ( 1% pt from Sept ) – Low Risk
Total LA & Bond to TD
 101%( 3% pt from Sept)
• CAR
 23% ( 1% Pt from Sept & 1%) – Low Risk
Risk Level
Low
Moderate
High
below 28%
[28-36] %
above
36%
below 1%
[1-5] %
above 5%
below 39%
[39 -46] %
above
46%
above 133 %
[88 -133] %
below
88%
4
Review of Top 200 & large Loan Borrowers for
2nd Quarter Ended December 31, 2020)
February, 2020
Major Findings
Parameters
Sep 30 2020
Dec 31 2020
Quarterly Implication
Change
Share of Top Two 79.89%
(Birr 79.59%
(Birr
Hundred & Large 183,934 Out of 193,901 Out of
Loan Borrowers
Birr 230,226)
Birr 243,637)
5.42%
Existence of high concentration
risk in which if something that
hamper the smooth repayment of
the loan of this category springs
up, it can significantly affect the
asset quality and financial
performance of the Bank.
NPL Amount,
Birr 7,086 (3.85%); Birr7,211(3.85%);
Ratio and its
64.2% (Birr
65.6% (Birr
contribution to the 11,040)
10,997)
total NPL
1.76%
(0.39%)
This has proved how the
concentration
risk
majorly
contributed to the NPL of the
bank.
Cont’d (Concentration)
Parameters
Ownership
Tenure
Sector
Credit
Product
Sep 30 2020
Dec 31 2020
Public Enterprise
Regional Govt
Private
Cooperative
Long
Medium
Short
Industry
139,543 (75.87%)
7,945 (4.32 %)
36,353 (19.76%)
93 (0.05%)
144,182 (78.39%)
9,983 (5.43%)
29,769 (16.18%)
130,011 (70.68%)
149,129 (76.91%)
8,210 (4.23 %)
36,469 (18.81%)
93 (0.05%)
149,405 (77.05%)
9,374 (4.84%)
35,123 (18.11%)
133,544 (68.87%)
Quarterly
Change
6.87%
3.34%
0.32%
3.62%
(6.1%)
17.98%
2.72%
International trade
20,444 (11.12%)
25,662 (13.23%)
25.52%
Bldg &
Construction
Term loan
Advance
OD
IFB
ML
16,957 (9.22%)
17,761 (9.16%)
4.74%
162,327 (88.25)
15,190 (8.26%)
3,685 (2%)
2,492 (1.35%)
240 (.13%)
166,101 (85.66)
21,118 (10.89%)
3,546 (1.83%)
3,126 (1.62%)
9.30 (.0.005%)
2.32%
39.03%
(3.77%)
25.44%
(96.12%)
Implication
The top 200 & large loan
borrowers credit portfolio in
terms of ownership, tenure, sector
and product is disproportionately
concentrated which makes it
highly vulnerable to any adverse
situation happened to the
aforementioned categories. This
has been proved with its lion’s
share contribution for the NPL of
the bank.
Cont’d (Asset Quality)
Parameters
Asset Classification
Credit Risk Grade
Sep 30 2020
Dec 31 2020
Quarterly Change
Implication
Pass
168,087 (91.4%)
182,227 (93.98%)
8.41%
SM
Sub-Standard
Doubtful
Loss
8,761 (4.8%)
2,146 (1.2%)
2,922 (1.6%
2,018 (1.1%)
4,463 (2.3%)
1,052 (0.54%)
1,996 (1.03%)
4,162 (2.15%)
(49.06%)
(50.97%)
(31.69%)
106.24%
The repayment trend and performance of
the top two hundred and large loan
borrowers indicates that majority of the
loans were under Pass status. However,
comparing performances (asset quality)
under each category Vis-à-vis preceding
quarter, it has been deteriorating and
moved from bad to worst. The Public
enterprises’ total principal arrears during
the quarter ended December 31, 2020 was
Birr 19.47 Billion out of which, Birr 1.9
Billion goes to loans availed for Regional
Governments (SNNPRs, Tigray and
Benishangul Gumuz)
1
147,827 (80.37%)
151,606 (78.19%)
2
3
4
5
Loans Reported with
no Risk grade
9,739 (5.3%)
18,629 (10.13%)
2,854 (1.55%)
979 (0.53%)
8,938 (4.61%)
22,138 (11.42%)
2,626 (1.35%)
1,026 (0.53%)
2.56%
8.22%
18.84%
(7.99%)
4.8%
3,905 (2.12%)
7,567 (3.90%)
93.77%
Here also pertaining to NBEs directive,
Loans & advances backed by MoF
guarantee are always under the credit risk
grade of 1 irrespective of their irregular
repayment trend
Cont’d (Collateral)
Parameters
Dec 31 2020
O/s amount
Private
33,066
Public with MoF
130,195
Guarantee
Public Enterprise
13,328
Collateral
Regional
8,210
Government
Loans reported
without collateral
9,009
balance
Dec 31 , 2020
Collateral
amount
41,632
150,951
2,821
38,547
-
Cooperatives
92.65
-
Implication
Collateral is always considered as second
way-out as the bank’s follow a cash- flow
based lending policy. The total collateral
coverage of top two hundred and large
loan borrowers, however, was 120.65%.
Hence, the properties and MoF guarantee
offered as collateral for top two hundred
and large loan borrowers have covered
more than 100% of the total outstanding
balance. Collaterals offered to secure the
loans include buildings (residential or
store), trucks with trailers, and machineries
(coffee/sesame clearing/construction and
production)
2nd
NPL Summary Report
Quarter December 31,2020
December, 2020
10
Portfolio Concentration
• Ownership
 Private = 10.99 Bill ( 16%) from June
 Cooperatives = 195 Mill ( 156%) from June
• Tenure
 ST= 2.61 Bill (24%)
 MT = 3.69 Bill (34%)
 LT = 4.68 Bill (42%)
• Economic Sector
 DTS= 15.44% (2.5 Bill)
 Bldg. & Cons = 10.76% (1.98 Bill)
 Consumer loan = The least 1.51% (437.4
Mill)
(Condominium ,282 mill, Staff Mortgage, Birr
94.2 Mill)
Contribution to NPL by sector
 Industry (27%, 2.9bill), International Trade
(18.07%, 1.98 Bill) & DTS (23%, 2.5 Bill
• Credit Product
Term Loan= 9.2 Billion (84% Of the total NPL)
Advance against export = 1.49 Bill (13.61%
NPL)
Quarter/Status
June 30,2020
Sept. 30,2020
Dec. 31, 2020
Private NPL by loan status
Subs.
Doub.
Loss
Total
4,497
2,013
2,776
9,286
3,232
4,406
3,402
11,040
1,766
4,612
4,618
10,997
Expired NPL cases 744(70.2% of NPL) 2.7Bill
• The Bank’s NPLs amount in the quarter, birr 10.99 Bill (4.51%), has decreased by 0.39%
11
Major Causes of NPL
• Social unrest (1.72 Billion) =
16.61%
• Price decline (1.38 Billion) =
13.35%
• Covid-19 pandemic (1.36
Billion) = 13.18%
• Management problem(1.11
Billion)=10.77%
• Foreign currency shortage(1
Billion)=10.21%
• Fund diversion
• Bad weather
• Market problem
• Legal condition of borrowers
• Unwillingness
Resolution Activities
• The cases under NPL found at different
stages of resolution activities. The top
5 specific activities are
Under rescheduling process, O/S
balance of birr 4.7 billion,
Under litigation, O/S balance of birr
1.15 million
Under restructuring process,
O/S balance of birr 1 billion;
Under negotiation to settle arrears
amicably, O/S balance of birr 755.5
million,
Rescheduled O/S balance of birr
348 million
Foreclosure approved, O/S balance
of birr 281 million.
Under foreclosure process O/S
balance of birr 269.8 million
12
NPL cases Under Litigation and their aging
Source: District and WLO
13
Top 25 NPL borrowers by Sector
Top 25 NPL borrowers major Causes of default
Number of Principal O/S
Economic sector cases
balance
Share of
NPL
INDUSTRIES
EXPORT
Building and
Construciton
9
7
2,306,688,862
1,047,832,805
36%
16%
4
1,871,314,753
29%
DTS
4
578,769,534
9%
Agriculture
1
591,642,105
9%
Total
25
6,396,248,061 100%
Top 25 NPL borrowers by Product Type
Product Type
Term Loan-Working
Capital
Term Loan-Project
Total
Number Principal O/S
of cases balance
Share of
NPL
11
2,869,414,719.37
45%
14
3,526,833,342.00
55%
6,396,248,061.37
100%
Cause of NPL as per File
S.N based Review
Name customer
TEKLEBERHAN AMBAYE CONSTRUCTION PLC(1.46B, 13.3%
Poor credit
, ADIS CABLE&WIRE MFG'TEWOLDE GIDEY(688.9M, 6%) ,
appraisal(Project &
ALLIANCE TRANSPORT SERVICE S.C(182M, 1.66%),
1 Working Capital)
DVENTUS WIND TECHNOLOGIES PLC(68M)
TEKLEBERHAN AMBAYE CONSTRUCTION PLC(1.46B, 13.3%
, ADIS CABLE&WIRE MFG'TEWOLDE GIDEY(688.9M, 6%),
Poor approval
ALLIANCE TRANSPORT SERVICE S.C, ASKU PLC(891.6M
(sanctioning, exceptions 8.1%)DVENTUS WIND TECHNOLOGIES PLC(68.5 M),
2 and appeals)
GENNALE AGRO INDUSTRY PLC(213.2M)
Poor credit Management GENNALE AGRO INDUSTRY PLC,EDMEALEM EJIGU
3 & follow up
IMP.AND EXP, ANSIF SEYOUM ADUGNA(216M, 1.97%)
ASSEFA DUKALE WAKAYO, ASSEFA DUKALE WAKAYO,
BENSA WEREDA CHIRI KUNBURTA H/Y/Y/M, ADDIS ABEBA
TANNERY S.C, Ayka Addis Textile and Investment Group
PLC, EDMEALEM EJIGU IMP.AND EXP, ASKU PLC(891.6M
4 Fund diversion
8.1%)
Lax credit policy and
5 procedure
GENNALE AGRO INDUSTRY PLC(213.2M), ANSIF SEYOUM
ADUGNA, ASKU PLC(891.6M 8.1%),
Lack of commitment and JACARANDA TOURS TRAVEL P.L.C(152.6M, 1.6%), ADIS
poor project
CABLE&WIRE MFG'TEWOLDE GIDEY, SAUDI STAR
6 management
AGRICULTURAL DE.VT PLC
14
Compliance to Internal Policy & Procedure
and Regulations
15
Cont’d
Compliance to Internal policy
• Transferring of NPLs to Work out
loans management.
• There are NPLs at Corporate and
Business
Resource
&
Credit
Management
not
yet
been
transferred.
Asset classification(SBB/69/2018)
• Multiple loans and restructured loans and
advances classification to non-accrual status.
• Related and affiliated parties credit exposure
Adequacy of Provision
• Provision has been calculated as per the
NBE’s asset classification and provisioning
directive.
• Provision calculated and held as of Dec. 31,
2020 birr 10.08.
• However, NBE requirement is birr 7.7 Billion
indicating the Bank held provision amount
28% up from what was required.
16
NBE onsite Examination regarding Loan review visà-vis its Current status
NBE Onsite Finding
• Loan review report was not produced
against NBE Directive No. SBB/69/2018
(Qualitative file bae review). The review
did not cover all NPLs, ensure proper
classification & provisions of loan,
proper utilization of O/D facilities and
placement of accrued interest of NPLs
on
memorandum
account.
Besides,
qualitative/ file base review is not
conducted
Current Status





All NPLs are covered in the second quarter report.
Multiple loan classification has not been conducted
as the responsible organ, MIS in collaboration with
RCM has not provided the data. However, direction
has given BY the EMC to rectify the findings and It
will be corrected accordingly in the third quarter
report
Placement of accrued interest on the memorandum
account is already incorporated in the second
quarter NPL report
Second quarter Report about Proper utilization of
Overdraft facility is ongoing.
Qualitative analysis /file-based review has been
incorporated in the second quarter report. The NPL
report has covered file base review to identify the
real causes of the 25 NPL cases which made up
59% of the total NPL amount.
17
Cont’d
NBE Onsite Finding
• The loan review function did not
assure compliance of lending
activities with internal policies and
procedures
• The management did not discuss
risk and compliance assessment
reports
• There were high credit concentration
risk as top 20 borrowers constituted
65.86% of total portfolio and top-ten
NPLs 47.16% of total NPLs.
Current Status
• Both the Credit portfolio Risk monitoring
report and the loan review reports have
discussed those issues and assurance
about it is provided in the reports. For
instance, internal procedures and policies
about putting into practice cash flow-based
lending, immediate transfer of NPL to work
out and recovery management are some of
the procedural requirements which are
compromised.
• EMC has started deliberating on the risk
monitoring reports and discussion had
been made.
• It is known that even if CBE’s top 20
borrower’s share is significant amount from
total portfolio (high Credit Concentration),
all are Government backed (fully Secured)
loan which is still the same in the reports.
18
9
1
1 1
0
1
2
1
2
3
8
4
7
6
5
Recommendations/Point to Actions
Recommendations
• Approve and implement the proposed risk
limits/targets for appropriate classification
and diversification of loan portfolio
• Strengthen collection by monitoring the
repayment schedule, due attention should
be given to those customers whose credit
exposure has significant effect on the Bank
and currently shows a deteriorating credit
quality to be under delinquent category.
• The Bank shall collect audited financial
statements as per its credit procedure
requirement for SOEs credit request.
• BOD shall approve the proposed risk
limit.
• RCM (ongoing)
• RCM (ongoing)
20
Cont’d
• Conduct detail assessment on causes of
NPL on sectors having large amount of
NPL.
• The Bank has to keep up requesting MoF
for settlement of the expired Regional
Government loans based on existing
contractual agreement by deducting from
their respective budget.
• The Bank has to comply the requirements
stipulated in the NBE directive for tenure
classification,
portfolio
composition,
classification of restructured loans under
NPL, related and/or affiliated parties and
multiple
loan
accounts
adverse
classification.
• RCM & CAPM (ongoing)
• RCM & Finance(ongoing)
• RCM & CAPM (ongoing)
21
Cont’d
• The Bank should take in to consideration
the existing liquidity status, changes in
internal
and
external
business
environment and recommendations of Risk
and
Compliance
Management
while
making financing decision.
• In order to protect the occurrence of loan
default, the bank should adapt post-credit
risk assessments on whether the borrowed
funds are being used for the intended
purpose.
• ALCO & Finance (Ongoing)
• Resource & Credit Management
22
Cont’d
• For borrowers categorized under credit risk grade of 5 and
above, appropriate action plan should be devised and
implemented to revert these loans to moderate and low risk
category and deter further deterioration of the same.
• The Bank’s procedure demands for immediate transfer of
NPL cases to Loan Workout Division hence the same shall be
done.
• In order to improve the NPL status at corporate level, a task
force shall be established with the major responsibility of
resolving the top NPL cases within a specified period. The
task force shall be comprised of experts from Resource and
Credit Management, Credit Appraisal & Portfolio
Management and Legal and Loan Recovery Divisions.
• Resource & Credit Management Division, the WOL as well as
Districts shall expedite and give more attention to the
resolution process of the NPL cases that have stayed for long
years through the available means including write-off on
• Resource & Credit Management
• Resource & Credit Management
• Resource & Credit Management
• WOL, Districts & RCM (Quarterly)
• Resource & Credit Management
• Executive Management should give due attention
to resolve NPL cases at head offices (WOL
Management), Hawassa and Mekelle districts,
which has higher share of total NPL stock.
• The Bank should remove post write-off balance
which was held to monitor the written off loans
from its book of account. A well-designed process,
system and database should be put in place to
monitor and follow up post write-off loans.
• Appropriate training and coaching should be given
to credit performers to improve their skill in credit
risk management.
• EMC/BoD
• EMC
• RCM, HRD and Districts.
24
Thank you!