Three banks navigate troubled waters following failure to settle advance payment guarantee bonds issued to grade-one contractors.

Wegagen, Berhan, and Enat banks have been asked to settle 751.5 million Br after the construction companies defaulted on their contracts on four building projects in Addis Abeba under the Federal Building Construction Project Office.

Even though the banks have already settled a part of the amount owed, the advance payment guarantees are equivalent to 47pc of the aggregate profit they made in the last fiscal year. This is hardly the first time commercial banks find themselves in a precarious position due to unserviced bonds; several financial institutions were delisted by the Ethiopian Roads Authority (ERA) earlier this year for allegedly failing to discharge their obligations in a timely manner.

Wegagen Bank has issued a whopping 224.5 million Br guarantee bond to Afro-Tsion Construction Plc, contracted to build 11 storeys in the premises of the National Theatre. The grade-one contractor, awarded to undertake the construction for 1.5 billion Br two years ago, was expected to complete the project next year. However, less than a tenth of the construction had been completed by the time contract was terminated in March 2021 due to the slow pace, Tekletsadik Teklearegay, head of the Project Office, disclosed to Fortune.

The Project Office has only managed to collect 8.8 million Br from the Bank, less than five percent of the total amount.

“Our office has submitted all documents and reports to the Attorney-General," said Tekletsadik. "They can take the legal issue up with Wegagen Bank.”

The Vice President of Wegagen Bank, Desaley Embza, cited "customer confidentiality” for declining from providing details on the guarantee his Bank provided to Afro-Tsion Construction and make comments.

“We can't discuss customers’ loan and guarantee information because of bank policy,” Desaley told Fortune.

Enat Bank has managed to pay 71.1 million Br of the 241.4 million Br provided as a guarantee bond on behalf of Tekleberhan Ambaye Construction Plc (TACON).

TACON was hired to undertake a 16-storey building initially planned to serve as the now-defunct Government Communication Affairs Office headquarters. Before the contractor completed the project, forecasted to cost 1.2 billion Br, the Project Office scrapped the deal in November 2020. It will soon house the Ministry of Trade & Industry when construction work awarded to the state-owned Ethiopian Construction Works Corporation is completed. Managers at TACON were not available for comment, despite repeated attempts from Fortune.

Berhan Bank is in more precarious circumstances as it is liable for advance payment guarantees worth more than a quarter of a billion it provided to contractors for two separate projects in the capital.

The Bank guaranteed a 20pc advance payment made out to Afro-Tsion Construction Plc, for a 1.1 billion Br project involving two buildings, a diplomatic residence and a training centre in the Kazanchis area, for use by the Ministry of Foreign Affairs. The Bank has only settled 34.2 million Br of the total of 227.1 million Br it owes.

Afro-Tsion Construction received a notice of termination from the Project Office in March 2021, due to alleged sluggish performance, while the buildings were at 14.3pc progress. The work was scheduled to be completed next month. Managers at Afro-Tsion Construction were not available for comment, despite repeated attempts from Fortune.

Girum Tariku, marketing and communications director at Berhan Bank, says the Bank is not aware of the termination of the contract, hence the Project Office is in talks with the contractor.