EADB in yet another huge loss

Bad loans continued to batter the East African Development Bank, which posted a second straight loss for the past fiscal year as investors held on to money they had promised to advance the Bank for on-lending.

Five months behind schedule, the EADB annual financial report was quietly released last week, showing a loss of $8.79 million after a $13.5 million provision for bad loans.

This loss is just $70,000 less than the $8.86 million loss that the Bank posted in 2007, shocking markets that had seen a profitable operation in the preceding three years.

In that year, the Bank provided about $20 million to cover bad loans, many of which were blamed on political influence in approval, and weak supervision.

The Bank hardly raised any new funds for on-lending during the year in the face of plummeting investor confidence that is partly attributed to the poor financial health, but also due to litigation issues that currently oblige EADB to pay $100 to a borrower in Tanzania.

Uganda’s Finance Minister Syda Bbumba who seats on the Bank’s Governing Council told The EastAfrican that litigation liabilities capable of sinking the institution have had the worst impact on investor confidence.

First, EADB had not yet received the much anticipated $80 million line of credit from the African Development Bank (ADB), a year after it was expected.

Hidden bad loans

When The EastAfrican exposed the Bank’s poor financial health last year, it reported that AfDB had indefinitely suspended approval of that line of credit after suddenly learning that EADB had been suffocating with bad debts away from the limelight. EADB’s 2008 financial report stated that discussions to finally get money from AfDB were still ongoing.

Secondly, the report stated that the Bank was still negotiating a long standing deal with the European Investment Bank to engage directly in local currency facilities, yet a representative from that Bank had told journalists at EADB’s headquarters in Kampala in 2007 that the deal was almost done.

Equally, EADB is still waiting for $90 million promised under a recapitalisation programme by the East African Community Member States who own the Bank.

When the Member States agreed to recapitalise the Bank to this magnitude in 2007, Kenya, Uganda and Tanzania were to contribute $30 million each, although this adjusted to $22.5 million when Rwanda joined the Bank.

Besides the current ugly figures on EADB’s books, the Bank has litigation issues that could easily sink it.

Early this year, the Appellate Court of Tanzania ruled that the Bank pays John Lamba, a borrower $100 million in a legal battle that has lasted over ten years, a development that has lowered the rating of investor confidence in EADB.

Uganda’s Finance Minister Bbumba said, “Investors were waiting to see how that case would go, and what the way forward would be, otherwise the member states are committed to the Bank’s survival.”