NIB Auctions Real Estate to Recover Loan

Addis Fortune (Addis Ababa)

Mahlet Mesfin

13 June 2011

Nib International Bank (NIB) is to auctioning nine one-storey houses that are nearing completion and owned by Kara Kore Real Estate to recover 8.1 million Br outstanding loan it had given the company.

The real estate company, which has Omer Abdulrazak Fedel and Omer Abdulrazak Fede, an Ethiopian and Yemeni national, respectively, as shareholders, took a loan of 17.5 million Br for construction in March 2006. Kara Kore, with a total capital of 7.5 million Br, agreed to pay back the loan in full within a year.

However, it paid only six million Birr, forcing the bank to extend the period by three years, according to Beyene Alem, head of the legal Department at NIB.

However, while the bank insisted that the payment has not been made in full, the company claimed it had paid the amount by the extended due date.

“We negotiated with the bank’s higher management and settled the amount,” Samuel Mulugeta, marketing manager of Kara Kore Real Estate, told Fortune. “It is a misunderstanding created by a lack of communication.”

This claim was greeted with incredulity by Beyene.

“There would be no reason for NIB to put out a public tender if the company had paid up, since the bank’s goal is to recover the loan,” he responded. “Foreclosure is the last option of a bank to collect debt. If Kara Kore is willing to pay, the bank will stop its legal actions immediately.”

The houses up for auction, most of which are located in Kara Kore in Kolfe Keranio District, were constructed on plots ranging from 250sq to 500sqm. They are being auctioned at starting prices ranging from 250,000 Br to 1.4 million Br, depending on the size of the plot and the level of construction completed.

“The bank selected the houses it believed would settle the debt it is owed, based on appraisals made by the bank’s engineers,” Beyene told Fortune.

The smallest starting price set in the tender floated by NIB is 558,000 Br for a house on a 250sqm plot of which only 35pc of construction has been completed, while the highest is 1.4 million Br for a house on a 500sqm plot that is 75pc completed.

The starting prices are considered cheap in comparison with those of other residential houses, according to Biniam Bati, a civil engineer who works at a private company in the capital. The minimum price of a residential house on which 75pc of construction has been completed, is estimated to cost 2.5 million Br, he said.

“The price varies depending on the construction materials, the percentage of the plot used for construction, and the area it is located in,” Biniam told Fortune. “Industry figures indicate that a square metre of a building can cost an average of 4,000 Br.”

A residential house may cost between two million Birr and four million Birr in 2010, data from Access Capital Services (ACS) indicated.

“The bank had to auction the properties, since the central bank requested action to be taken against the loan, which is considered a non-performing loan (NPL),” Beyene said. “As a result, we gave Kara Kore legal notice on March 8, 2011.”

A creditor bank with a property mortgaged and whose claim is not paid within the timeframe of the contract can auction the property upon giving a 30-day notice, according to the proclamation on property mortgaged with banks.

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