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Yemiru Nega, owner of Dembel City Centre, has bought
himself some time against threats by the Development
Bank of Ethiopia (DBE) to foreclose on his shopping
mall after he defaulted on 221.4 million Br in debt.
Yemiru said he convinced Bank officials to hold off
foreclosing by making an eight million Birr payment
toward his unpaid debt and promising to deliver
another 27 million Br before January 31.
Furthermore, the agreement requires Yemiru to hand
over the lease agreements of his tenants to the
Bank, which will take over the task of collecting
rents.
“If it were not for the hasty move of resorting to
foreclosure on the part of DBE, I was capable of
paying my due and still am going to live up to my
obligation to service the debt based on the
agreement,” Yemiru told Fortune. “I will not
hesitate to honour the agreement in full and am
capable of paying off the debt.”
The near foreclosure of Dembel, the country’s
largest shopping mall, highlights concerns that
Ethiopia’s banking sector has been too generous with
credit, especially to the booming real estate
industry. The DBE, according to its quarterly report
for the period ending September 30, 2006, had
approximately 1.9 billion Br in non-performing
loans, a ratio of more than 1-3 to the Bank’s 5.4
billion Br in total outstanding loans.
A major shareholder and general manager of Yencomad
Construction Plc, Yemiru took 186 million Br in
loans from DBE some ten years ago to erect Dembel
City Centre on Africa Avenue (Bole Road). The
completion of this 12-storey vast structure, housing
114 shops and offices, cost nearly 300 million Br
before it was opened for commercial activities in
2001.
After a series of letters issued from DBE’s loan
office to remind the debtor of missed payments, the
Bank on November 12, 2007, dispatched a letter to
the Land Development and Administration Department
of Kirkos District to cooperate in the take-over of
the mall.
According to the letter the Bank wrote to the
District, the building taken as collateral against
the loan would be foreclosed on December 6, 2007. A
week after the Bank’s decision to foreclose the
building became public on November 20, Yemiru rushed
to pay the eight million Birr of the debt and
entered into negotiation with the Bank’s executive
management and Board of directors in an effort to
halt the foreclosure.
The businessman’s pledge to pay 27 million Br in
installments before January 31, 2008, was received
positively on the part of the Bank’s officials, who
in turn extended the foreclosure deadline, DBE’s
source disclosed to Fortune.
Yemiru signed an agreement on December 4 with Getnet
Temechew, head of the legal department at DBE. The
following day DBE wrote letter to the Kirkos
District informing them that the seizure of the mall
has been postponed for an indefinite time, which was
received last week, according to an official from
the District Office.
The decision reached by consensus between the Bank’s
management and Board members has also secured the
approval of the Public Financial Enterprises Agency
(PFEA), the supervisor of state owned financial
institutions.
“Foreclosure is the worst case scenario; as long as
borrowers are willing to settle their debt, banks
should encourage them,” Eyob Tesfaye (PhD), PFEA’s
director told Fortune.
“This does not mean, however, that banks are
‘babysitters’.”
“After all, the 56-day extension given to Yemiru is
not a big deal to anyone,” said Eyob in support of
the Bank’s decision.
Once the proprietor has paid the 27 million Br in
overdue interest by the end of January, DBE was
instructed by PFEA to enter into negotiation with
the debtor in a way the principal loans would be
serviced, sources at DBE told Fortune.
However, by the time the businessman pays the 27
million Br, his total due will have risen to 190
million Br up from 186 million Br as it stands now.
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