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Auditors of the bank, A.A. Bromhead & Co., are also
concerned with an unusual practice by powerful
shareholders at Abyssinia of taking shares of the
company with a promise to pay later, and then using
the unpaid shares as collateral to get credit from
the bank for other purposes such as merchandise
loans, letters of credit and overdraft. There has
been an investigation by the Board of Directors,
following orders by the central bank, to determine
whether or not shares bought and sold last year
among major shareholders, known as the Group of
Seven (G7), breached any law.
“Our attention was drawn to the purchase of fully
paid-up [shares] and prescribed but not fully
paid-up shares of the Bank by some shareholders and
third parties from other shareholders and the Bank
financed by advances obtained from the Bank for
their businesses and diverted for the purchase of
those shares,” said the auditors in a letter
published in the year-end report.
Shareholders such as Tebekew Bale, Nega G.
Egziyabher, Getu Gellete, Buzayehu Tadelle, Weldher
Yezengaw and Abebaw Desta were asked by the
management, in August 2007, to explain what they
have done with a series of loans they have taken
from the bank where they held significant shares.
Following a legal opinion made by the Legal
Department of the NBE, which argues that it is
acceptable for shareholders to buy shares with a
loan they get from the bank, the issue remains
unresolved and ambiguous.
“The legal counsel we obtained on this issue was not
definite on whether the manner of financing of the
purchase of the shares contravened the commercial
code,” the auditors said.
Not only are shareholders concerned with the rise in
provisions, and the dispute surrounding why NPLs
have gone up, they also believe that they are paying
executives at the bank too much money.
Philippos W. Mariam, chairman of the board of
directors, declined to comment. CEO Aselefech
Mulugeta was also unwilling to respond to
Fortune’s written enquiries.
The remunerations of the board of directors of the
bank were adjusted in 2003/2004, in a bid to reflect
the market price at the time. The board chairman,
for instance, is paid a monthly fee of 2,500 Br and
a transport allowance of 750 Br, while other
directors earn 1,500 Br plus 600 Br for transport
allowance. On top of that, directors are entitled to
five per cent of the bank’s net profit should the
profit exceeds 7.5pc of its capital. Shareholders,
however, claim that the directors grossed 350,000 Br
each in the last fiscal year.
Shareholders have created a five-man committee to
investigate the directors’ remunerations and
recommend to the board what it believes is
appropriate compensation.
Not everything though is displeasing at the Bank of
Abyssinia, which was established in 1996; it is one
of the three private banks with paid up capital
exceeding 250 mln Br. According to a financial
analyst, the bank is in a solid shape overall, with
its total assets growing by 19pc, reaching 3.5 bln
Br. Its total deposits at the end of the fiscal year
rose by 25pc to 2.7 bln Br.
In addition, while the profit margin has declined
from 56pc to 36pc, the net interest margin has
declined by only one per cent.
Considering that the bank was in a recovery plan in
the year 2003/04, after it had suffered a 2.4 mln Br
loss, Bank of Abyssinia appears to be making a
comeback. It maintains a strong liquidity and
manages a sound adequacy ratio, which is usually a
problem for other banks, according to the banking
expert.
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