Officials of the National Bank of Ethiopia (NBE) have loosened the restrictions on the banking industry, allowing importers and edible oil producers access to asset-based collateral loans.

It is in reverse to a decision they made three weeks ago, freezing the type of loans they blame for the fleeting Birr against major currencies exchanged in the parallel market. However, central bank authorities conceded that the freeze would worsen inflationary pressure, driving prices for imported items up.

Effective last week, the measure by the central bank enables commercial banks to provide loans to producers of edible oil and importers borrowing for the settlement of letters of credit once approved.

"If approved LCs are held up, and people can't import, it'll worsen the inflation," said Dereje Zenebe, president of Zemen Bank, welcoming the change.

According to the central bank, those with approved or in the process of applications for letters of credit can apply for loans.

Last year, over 14 billion dollars worth of goods were imported, of which capital goods account 33pc. Consumer and semi-finished goods shared 29pc and 20pc, respectively.

International trade took up the largest portion of the 68.2 billion Br in fresh loans disbursed by commercial banks at the end of the third quarter of the previous fiscal year, accounting for 21.9pc, followed by domestic trade, agriculture, and industry.

Biotech Plc, a pharmaceuticals importer, is among those on the receiving end of the challenges presented by the loan freeze. According to Fitsum Alemayehu (MD), the general manager, the company has been facing a transient shortage of cash held in its letters of credit account. Such were problems addressed by taking out loans or overdrafts. Biotech's application for a letter of credit with the Commercial Bank of Ethiopia (CBE) was approved after two years of a wait when the decision by the central bank freezing asset-based loans came into effect.

The government may know what challenge outweighs another, but a blanket ban hurts businesses in legitimate activities, according to Fitsum.

“Allowing loans for letters of credit purposes is very helpful,” said Fitsum.

Though the authorities at the central bank have reviewed the freeze and opened up some wiggle room, the changes do not amount to much. The Documents Authentication & Registration Agency is not providing services to review the status of assets borrowers provide for collateral purposes. The Agency suspended services more than a month ago to undergo a system upgrade, but the Addis Abeba city cabinet instructed it to extend the suspension of services for land lease and asset transfers for an indefinite period.

"We're awaiting further instruction from the Addis Abeba Land Management Bureau to restart operations," said Muluken Amare, director of the Agency. It is unclear when that will be.