Agenda | Sep 10,2022
Bankers propose the National Bank of Ethiopia (NBE) mitigate its regulations and assist in providing loans to their assets that sustained losses during the war in Tigray Regional State.
The 22 commercial Banks under the Ethiopian Bankers Association submitted an assessment report on the impact of war in the regional state last week, indicating a staggering amount of damage to physical assets and jeopardised loan and advance repayments.
Regulators at the central bank had requested the banks to classify loans disbursed in Tigray as non-performing three months ago.
According to Demissew Kassa, secretary general of the Association, the banks performed a month-long assessment of asset quality following the Pretoria deal where 600 of their branches were operational before the conflict.
The report recommends relaxation on the requirements for the borrowers who have not been able to provide the renewed trade license, updated financial statements, tax clearance, and other documents to the banks.
It also suggests that the central bank loosens the asset classification and provisioning directive while suspending terms set for renegotiating loans and advances affected by the war until the situation improves.
The loan portfolio composition requires Banks to keep at 40pc short-term, 40pc medium term and 20pc long-term loans for five years.
Demesew said the percentage of long-term loans should be adjusted to address more businesses affected during the war.
"They can't provide those documents," he said.
Elias Geberemariam is one of the businesses affected by the war. He lives with his family in Mekelle city, the seat of the regional state.
He leased 4000sqm of land in the Ayder Industrial Park to manufacture machines such as stoves and other agricultural machinery over three years ago.
With plans to pay his loans back in five years, he took out a 12 million Br loan with 18pc interest rate from Lion Bank.
Unfortunately, the war broke out only a year after his factory became operational.
"I haven't even started paying back," he told Fortune.
The father of five is contemplating between the ideas of resuming work by taking out more loans or repaying the existing loan by selling the machinery.
He fears that the foreign currency crunch will hinder him from importing essential raw materials apart from getting finance.
The bankers also suggested the Central Bank suspend treasury bond payments, pay back of the outstanding balances of NBE bills and avail dedicated funds to alleviate their liquidity problems.
Aklilu Wubet, President of Wegagen Bank is hopeful regulators will intervene and make the suggested changes.
Wegagen was one of the banks highly impacted by the civil war in the north, suffering significant financial losses due to the disruption of services and closure of depositors' accounts, where it has one of its most extensive networks of 112 branches.
Over a quarter of the Bank's branches underwent closure and became out of the range of management supervision.
Asfaw Alemu, President of Dashen Bank, with over 30 branches in the region echoes his peer.
He is looking forward to the decision of the regulators at the central bank to start the recovery journey and address the cases.
According to Asfaw, proper evaluation of each case is necessary to make the decision of providing additional loans or putting up collaterals for auctions.
"It's depositors' money," he said.
The report along with a letter signed by Abe Sano, as President of the Association was sent to the Governor of the National Bank of Ethiopia last week.
"We're looking through it," confirmed Mamo Mihretu, Governor of the Central Bank.
Atelaw Alemu (PhD), an economics lecturer at Addis Abeba University believes the federal and regional government should actively be involved in the recovery and rehabilitation by providing finance from donations and fundraisings.
He recommends providing finance to businesses and banks from funds collected from international donors.
"None of this was their fault," he said.
PUBLISHED ON
Mar 25,2023 [ VOL
23 , NO
1195]
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