17 May 2017

Ethiopia: CBE Freezes Pending Proposals Once Again for Project Loans

Earlier last week, revising its initial plan, CBE ordered all pending proposals to go to DBE

The Commercial Bank of Ethiopia (CBE) has referred pending project loan requests to the Development Bank of Ethiopia (DBE). But the management of the Bank is on the way to appeal to the National Bank of Ethiopia (NBE), about the order to CBE to stay away from financing projects.

The command to the state-owned giant, CBE, was sent on April 18, 2017, stating CBE has to leave project funding to the state policy financier, DBE, and focus on operational financing. The decision displeased the management of CBE claiming it will restrict the activities and growth of the Bank.

By the time of the order, officials of CBE told Fortune the Bank would keep on financing pending projects and the nation's infrastructural development until the DBE built its capacity.

However, by the beginning of last week revising its initial plan, CBE ordered all pending proposals to transfer their requests to the DBE.

"This is made contingent with the circular that was issued by the central bank in April 2017; we informed all pending proposals to go to DBE except the ones which are already approved," Belihu Tekle, acting communications director of CBE told Fortune.

DBE, on the other hand, did not start accepting the proposals of the borrowers told to come to its door as detail-working procedures for the circular is not prepared yet, according to a source at the Bank. This left the borrowers clueless at to where to go.

During the meeting that was held two weeks ago in Bahir Dar to assess the nine-month performance report of the Bank, it was discussed that the new regulation from the central bank would affect the Bank and the management agreed to appeal to the central bank to lift its current order.

"If CBE stops financing projects, its customers will shift to the private banks, and this will inevitably affect deposit mobilisation of the Bank," said a source from the Bank.

NBE issued the new command with the primary aim of clarifying the latest credit policy introduced in June 2015. The policy states that project financing covers long and medium term loans. Long term loans are fixed at 20 years, while medium term loans are advanced for three to five years. Both terms include a grace period.

DBE has been tapped to provide permanent working capital, which is a working capital availed until projects become operational. Once the projects are up and running, they can access working capital loans that are considered as short-term loans to be paid in one to two years, from the CBE.

After the issuance of the new policy, CBE had been engaged in both financing projects and infrastructural projects along with working capital loans. The letter from the NBE sent to the CBE three weeks ago made it clear that the latter should only focus on financing operational projects.

DBE also received an order to hand over the project loan proposals from the CBE, albeit, did not receive the detailed application procedures to take over and proceed. Thus, the Bank did not start receiving proposals referred from CBE.

Many in the sector, however, argue that DBE is not in a position to finance projects as it lacks financial and human resource strength.

DBE has over 2,500 workers and 110 branches and does not mobilise deposit from account holders. On the other hand, as of March 2017, CBE mobilised 58.6 billion Br, opened 1,186 branches operating with 30,000 workers.

Last year CBE disbursed 92 billion Br in loans, while DBE disbursed a total of 11.84 billion Br.

Ethiopia

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