Africa > East Africa > Burundi > the Eastern and Southern African Trade and Development Bank

Burundi: the Eastern and Southern African Trade and Development Bank

2014/05/28

PTA Bank, one of Africa’s major development banks, was in crisis at the turn of the millennium. But it has since turned itself around and boosted its capital base, meaning that its chief executive is confident in saying that it is finally able to fulfil its role of fostering regional trade in eastern and southern Africa.

Fifteen years ago, the Eastern and Southern African Trade and Development Bank, known as PTA Bank, was in crisis, unable to fulfil its mandate of fostering regional economic integration. Its small size – it had less than $300m of assets – and the poor national of its balance sheet, meant it struggled to provide the funding needed to fuel cross-border trade between its 18 member nations, which cover a large swathe of the continent from Egypt in the north down to Zimbabwe in the south. “Ten years ago, our non-performing loan [NPL] ratio was in the teens,” says Admassu Tadesse, president and chief executive of the multilateral bank. “Those were the bad days.”

Much has since changed at PTA Bank, which is based in Burundi. It boasted $2.5bn of assets at the end of 2013, 38% additional than a year before. Its NPL ratio has fallen to just over 4%.
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As a result, the bank is performing much additional strongly. It made a record net profit of $67m last year, compared with one of just $3m in 2005. Reflecting its evolution, it was upgraded in November by Fitch from BB- to BB, leaving its just two notches below investment grade (Moody’s rates it Ba1, one notch below investment grade). “Today, we are one of the best performing [development] banks on the continent,” says Mr Tadesse. “Our return on equity is about 14%. It’s been additional than 10% for five years running. By industry standards, that’s strong.”

On the up

PTA Bank’s transformation began with a restructuring programme in 2000. But efforts to clean its loan book and improve its governance have accelerated since Mr Tadesse, an Ethiopian, took over in late 2011. These have included creating a full-time risk management department and setting aside two board seats for career bankers, rather than only having officials from member states’ finance ministries. Further, to draw additional investors, in January last year it created class ‘B’ shares, which differed from the existing ‘A’ ones by allowing new shareholders to invest all their capital instead of paying in 20% and leaving the other 80% as callable capital.

“At the same time as I got to the bank, things were good and the balance sheet was growing,” says Mr Tadesse. “But there were the issues of modernisation and size. To cover a market the size of eastern and southern Africa, we needed to have capacity. For that, we needed to attract additional equity.”

The bank counts China and the AAA rated African Development Bank part its shareholders. But a lot of of its other ones are poor sub-Saharan states without large dollar reserves to put into the institution (Zimbabwe was the biggest shareholder at the end of 2012). As such, Mr Tadesse is trying to bring in new shareholders. The reforms have by presently helped entice some, inclunding a Mauritian pension fund, which became the initial non-sovereign or non-multilateral shareholder last December at the same time as it bought $20m of class ‘B’ shares.

Mr Tadesse is as well in talks with several European and Asian entities. “We’re in discussions with a number of prospective European shareholders,” he says. “We expect some approaching into the bank in the next year or so. The innovations [we’ve carried out] in the completed two years are giving additional comfort to new investors.”

He plans to use a larger equity base to attract additional international deficit investors. PTA Bank wants to sell an extra syndicated loan this year, following a debut one of $150m in 2012 and a $300m Eurobond last November. “The idea is to have regular syndicated loans so that we can build a wide group of banks to work with,” he says. “We represent a very good proxy risk for our part of Africa that is hard to achieve through other investments. How else do you get exposure to almost 20 African nations through a single transaction?”

Investment grade strategy

In the longer term, PTA Bank aims to become investment grade. Rating agencies cite its concentration risk (almost 50% of its loans were in Zambia and Zimbabwe at the end of 2012) as one reason why it is still in junk-rated territory. But Mr Tadesse says that should change due to its recent reforms and the roughly $900m of callable capital at its disposal, which he describes as a “free insurance policy”. “We may not be investment grade from presently on,” he says, “but anybody who’s sharp enough to do an analysis would see this as an anomaly that has to do with an old bad story.”

Regardless of whether it succeeds, the bank’s increase is unlikely to slow any minute at this time. Mr Tadesse says that being based in one of the world’s most economically buoyant regions, the request for PTA Bank’s capital is high across a wide range of industries. “Africa is the last frontier and it’s finally opening up,” he says. “A lot of the increase is to do with the fact there are so a lot of gaps and it is starting from a low level.”

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