The six-decade-old journey of Wallia Leather & Leather Products, one of the oldest leather establishments in the country, recently ended. Named after an endemic mountain goat, the company was known for exporting semi-processed hides and skins. Before its long journey came to an end, the company had been tested in getting access to finance and foreign currency for the past couple of years.

All the company's struggles bore no fruit and forced the company to close its doors a month and a half ago. Located near the Drivers & Mechanics Training Centre in Aqaqi Qality District, Walia had exhausted all its options to stay afloat. It had reduced its workforce from 500 to 200 and had seen its manufacturing capacity decrease significantly.

Struggling with financial strain, the firm pleaded with Commercial Bank of Ethiopia (CBE) to access finance, especially for a renewal of an overdraft facility limit and the restructuring of existing loans.

By March, it had requested support from the CBE to renew its existing overdraft facility and request a restructuring of its loans through a nine-month waiver. Two months later, the company got a promising response or at least what started off as one.

The Bank granted the company a renewal on its overdraft facilities for up to 20 million Br and an additional 30 million Br in a pre-shipment facility to procure raw materials that the leather company desperately needed.

This came with an additional 250,000 Br renewal of a performance guarantee. But the letter did not end there. The Bank's response, however, ended with a significant condition — the company had to first clear all its accrued interest, an instruction tantamount to sealing its unfavourable fate. The Bank stated that the company needed to do better on its loan repayment before accessing more.

It was devastating news for the managers of the company, which have been struggling for survival due to the impact of the Novel Coronavirus (COVID-19) and other factors, including a shortage of raw material and foreign currency. This pushed Wallia Leather & Leather Products, a pioneer in the industry, to close its doors last month after nearly 60 years.

"Things were beyond the capacity of the company," said Tatek Yirga, the president of the Ethiopian Leather Industry Association and general manager of Kangaroo Industrial Group.

Access to finance and foreign currency are not only the problems of Wallia but the hurdles of many industries in the country. But these issues appear to have greatly ravaged the leather and tannery business.

Three more companies are following in the footsteps of Wallia, according to Tatek, mentioning Addis Abeba Tannery, Batu Tannery and Ethio-Leather Industry Plc (ELICO), which already went out of business and are on the verge of giving up.

"Issues with access to finance and foreign currency are forcing companies to shut their doors," he said.

Against such a backdrop of uncertainty in the economy and the financial sector though, deposit mobilisation, and thereby profit, of most commercial and state banks has risen to a staggering height in the past fiscal year.

Outstanding loans, excluding corporate bonds, increased by 20.4pc to a little over one trillion Birr. Out of this total, the state banks — the CBE and the Development Bank of Ethiopia (DBE) — account for 66.4pc.

The weighted average saving and time deposit rate of banks stood at eight percent. At the same time, the simple average lending interest rate increased to 14.25pc from 13.5pc. The lending rate last year went up as high as 21.5pc.

Out of the total loans and advances approved last year, the biggest private institution, Awash Bank, has a share of 5.5pc. Mines, power and water resources took the lion's share of the outstanding loans and advances, which is 29.5pc. Industry followed with a share of 21.5pc. The share of the private sector improved slightly to 47pc from 44pc.

This might have been due to the attention given to the private sector, as envisaged in the economic reforms, according to Abdulmenan Mohammed, a financial statement analyst with close to two decades of experience.

However, this did not translate into Wallia Tannery's case, since it did not stop the company from shutting its doors and letting go of its employees and the legacy it kept for over six decades.

Though the government set a priority of supporting businesses in the manufacturing and agro-processing sector to get loans, manufacturers are facing their biggest period of challenge, which has lasted for a couple of years. But the problem became more severe after the onset of the COVID-19 pandemic.

"Banks are treating manufacturing just like the service sector," said Tatek, "which needs to be rectified."

Though the banks have reported a positive performance, particularly in making market share gains, they operated through a year where the country was shaken by recurrent unrest and the deadly negative impact of the pandemic. The sector was also tested by different challenges, including a foreign exchange crunch and a tight liquidity environment, which had never been seen in the past two decades. To address the problem, the central bank intervened and availed 14.5 billion Br in loans to the private banks in two rounds at a competitive bidding interest rate.

The pandemic arrived in the country when the banks were pulling themselves out of a liquidity crisis. Borrowers were not able to service debts due to the storming effect of the virus, and mobilising resources was another challenge for the banks.

The deposits mobilised by banks increased by 15.8pc to just over one trillion Birr — about 10 billion Br more than total outstanding loans. The growth rate is lower than the rate that was recorded during the year ended in June 2019, when deposits grew by 23.2pc.

But everything was not a dead-end for the banking industry. As part of the Homegrown Economic Reform Plan, the central bank has made a few major policy changes to relax the banks' operational ground. It has repealed the mandatory NBE bond, which required commercial banks to surrender 27pc of their gross loans and advances in exchange for the bonds.

With a maturity period of five years and a five percent interest rate, the bonds were redirected to the DBE, which finances priority areas selected by the government. The banks were getting five percent interest for the bond while paying three percentage points more interest for the deposits they mobilise.

During the years, considerable progress was observed in branch expansion, which increased by 947 to 6,511. Out of the total branches, 66pc of them are located in the regional states.

Last year, the other major policy changes were the central bank's move in reforming the T-Bill market, making the market determine the yield rate. The move is aimed at attracting banks, insurance companies and individuals to participate in the primary market through auctions.