Feb 2 , 2025
By AKSAH ITALO ( FORTUNE STAFF WRITER )


Businesses and traders in the Tigray Regional State have been granted a one-year extension on loan repayments totalling 86 billion Br, offering temporary relief after the devastating two-year conflict.

The National Bank of Ethiopia (NBE) initiated this extension after the initial grace period expired on December 16, 2024, prompting commercial banks to take action against borrowers unable to repay accumulated debts.

The conflict severely impacted businesses, with debts quadrupling due to accrued interest.



The Central Bank has issued a new circular to all banks, easing requirements for loan provisions, rescheduling, and handling non-performing loans (NPLs).

This circular, signed by Vice Governor Solomon Desta, aims to support war-affected investors struggling with crippling debt and interest accumulation.

Banks must assess each borrower’s financial status and evaluate asset damage. Loan recovery plans must be developed and submitted by March 31, 2025.

Banks are required to implement more flexible repayment options for businesses impacted by the war.

The decision comes as many businesses in Tigray struggle to resume operations following the war. During the armed conflict, the NBE ordered the closure of 616 bank branches to curb widespread looting and security risks, further exacerbating the region’s economic downturn.


The central bank has temporarily suspended key provisions of its Asset Classification & Loan Provisioning Directive, allowing banks greater flexibility in rescheduling loans for businesses in Tigray.

The new circular issued by the central bank permits financial institutions to extend loan repayment timelines beyond two years, issue new loans without audited financial statements, and provide financing to borrowers with downgraded credit ratings. The circular also temporarily lifts restrictions on loan iterations, enabling additional credit for businesses that have reached their borrowing limit.



Belete Fola, a portfolio manager and principal examiner at the NBE, stated that these measures aim to facilitate economic recovery by easing financial burdens on businesses in the region. Banks are expected to assess borrowers' financial conditions, develop loan recovery plans, and report their findings by March 31, 2025.

The Directive, introduced in June 2024, was designed to strengthen risk management by enforcing stricter loan classification and provisioning requirements. However, the latest circular temporarily overrides certain restrictions, allowing banks to refinance and reschedule loans for businesses affected by the war. Borrowers who have reached their credit limit may also be eligible for additional loans under special conditions.

As of June 2024, commercial banks have issued nearly 1.5 trillion Br in loans and advances, maintaining a non-performing loans (NPL) ratio of 3.6pc, below the regulatory five percent threshold. Banks are required to ensure that the total sum of their on-balance sheet items, including loans and advances, and off-balance sheet exposures to related parties, does not exceed 25pc of their capital. However, this requirement excludes credit risks associated with lending to investors in the Tigray Regional State.

Belete stated that waiving interest payments remains at the discretion of individual banks, based on their financial assessments and risk portfolios.


Dagmawi Kassahun, vice president of Berhan Bank, stated that the NBE's new directives provide clear guidelines for banks operating under current economic conditions. He told Fortune that his bank has begun preparations to extend new loan provisions and has formed teams to ensure compliance with the revised regulations. However, he says that carefully analysing the implications of these directives before implementing an action plan is important, particularly concerning potential risks associated with credit exposure to related parties.

Berihu Haftu, president of the Tigray Chamber of Commerce & Sectoral Associations (TCCSA), says that investors in the regional state face severe hurdles in resuming business operations due to the lack of financial support. He revealed that the Chamber has been lobbying for a full loan write-off for investors whose assets were entirely destroyed and a 50pc debt reduction for businesses that suffered partial damage. TCCSA has also called for new loans to be provided to affected businesses.


"Nothing substantial has been done for investors," Berihu said, expressing frustration. He questioned the rationale behind demanding interest payments when banks were non-operational during the conflict.

Business representatives in the Tigray Regional State have been pushing for a write-off of interest on loans totalling 31 billion Br in recent discussions with central bank officials. Despite their efforts, NBE has denied the request, leaving businesses to rely solely on extended repayment periods.

Berihu argues that businesses in the regional state face constraints due to the NBE’s credit growth cap and the absence of special financial provisions for recovery.

"Investors are still in crisis," he told Fortune. He says while businesses have been unable to resume operations, commercial banks have started taking punitive actions against struggling borrowers.

Among the hardest hit is Moges Negu Commercial Ranch Plc. Established in 2006, the company suffered millions in damages during the war. General Manager Haleka Moges revealed that a 570 million Br loan taken six months before the conflict has now ballooned to nearly one billion Br due to accumulated interest.

"We requested an interest waiver and an extension of the repayment period," he said. However, efforts to restart operations have stalled due to financial constraints, and a 3.7 billion Br loan request remains unapproved.

Another investor, whose water bottling company was completely destroyed at the start of the war, saw an 80 million Br loan swell to 110 million Br with interest. The company has struggled to recover, and a request for a new 180 million Br loan for machinery and working capital has been rejected.

"We are struggling to recover," the investor stated, arguing that merely rescheduling existing loans is not enough.


"We need to rebuild before repaying loans," he told Fortune.

Investors have voiced frustrations with the Tigray Investment & Export Commission (TIEC) on several occasions. Kassahun Gebregziabher, the Commission's deputy head, stated they are still pushing for financial relief and duty-free import permits from the Ministry of Finance (MoF) and other government officials.

"Nothing has changed," he said, noting that over 63 investors who requested duty-free permits to import construction materials are still waiting. He also states that financial pressures are worsened by unpaid demurrage costs at Djibouti ports, where machinery is being held.

The Tigray Genocide Inquiry Commission identified over 34,000 instances of damage across various sectors, including retail, manufacturing, services, agriculture, health, education, public services, and religious and cultural heritage preservation.

Credit exposure provisions have been constantly changing since the banking sector was liberalised, according to Tilahun Girma, a business and investment consultant. He said that banks are reluctant to write off loans and interest, fearing it would prompt other businesses to request similar incentives, raising their risk.

"Banks fear a slippery slope," he told Fortune. He argues that while credit risks are high, banks must share the burden in such situations. He suggested a more sustainable approach, where government support helps banks manage the financial load while preserving their capital.

“The sustainability of their capital is crucial,” he said. Tilahun recommends measures that balance the needs of banks and businesses in the regional state.



PUBLISHED ON Feb 02,2025 [ VOL 25 , NO 1292]


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