The National Bank of Ethiopia lifted some rescheduling, restructuring or renegotiation of outstanding loans. The governing bank also released a new loan portfolio scheme for commercial banks.

With the amendment, the banks have the freedom to negotiate on the manner of collection of interest and principal in cases of requests for rescheduling, renegotiating or restructuring of loans. The governing bank issued the new directive on November 8, canceling the decade-year-old directive on asset classification and provisioning.

The banks can now reschedule short-term and medium-term loans up to a maximum of five iterations with the new directive and up to six iterations for problematic long-term loans. The previous directive allows only three iterations for troubled short-term and medium-term loans.

“This is good news for the businesses who borrowed from banks,” said a vice president at one of the leading private banks. “We can now have the right to extend and allow reasonable extensions for borrowers to pay their debts.”

The procedure in issuing the amended directive created some confusion in the industry. The central bank sent a letter to banks ordering them to cease declaring foreclosures and repossession of mortgaged properties prior to issuing the new directive.

“The governing bank should have sent the directive first rather than the letter,” argued a chief operations officer at a private bank.

The letter, signed by Solomon Desta, director of bank supervision at NBE, states that following requests made by many borrowers to improve the prior directive, the letter directs commercial banks to immediately cease all foreclosure actions that are in the process.

“We were informed about the amendment of the directive when we had a meeting with the Governor last week,” the COO told Fortune. “We didn’t know when they would bring the directive into effect.”

The outcome though has been welcomed by the industry.

For Habib Mohammed, who has worked for a decade as a credit manager at one of the private banks, the directive has pros and cons.

“The lift of conditions on outstanding principal payments is a commendable move by the NBE,” he told Fortune. “Now banks can have the authority to decide whether to extend or reschedule loan terms by evaluating the financial conditions of their borrowers.”

In the previous directive, banks were obliged to collect 25pc of the outstanding loan when extending a second iteration, and 50pc for the third. The amended directive lifts this rule while demanding a prudent examination of borrowers by the banks.

The new 25-page directive, in addition to lifting the conditions of principal payments, also brought a smile to the banks and their clients by allowing previous defaulters to get additional loans.

“The relaxation must be triggered by a situation where a large number of borrowers are struggling to pay their loans according to the terms,” reasened Abdulmenan Mohammed, a financial expert with 15 years of experience.

Habib agrees with Abdulmenan.

“Banks were obliged to foreclose even if they didn’t want to,” he argued.