Central Bank Appends Movable Assets as Collateral

Vehicle log books, valuable household items and land titles will be accepted as collateral

The National Bank of Ethiopia (NBE) drafted a new proclamation that will enable banks to take movable assets of companies or individuals as collateral for loans and advances.

Aimed at promoting investment, the new proclamation was already sent to the Council of Minister (CoM) for approval before it will be tabled to the parliament for legislation.

Movable assets such as vehicles and equipment can be used as collateral to access loans from any of the financial institutions that have formerly been accepting only fixed assets.

Vehicle logs books, valuable household items and land titles, are among the items financers could put ut up as collateral, according to the new legal framework.

The regulatory body, NBE, expects the new procedure to become effective within three months and expand the type of assets that can be used as security so that potential borrowers, which have been deprived of credit, will get loans from banks using movable assets as securities.

In the current procedure, financial institutions have been taking fixed assets of the borrowers as a guarantee with the most probable value of a loan or an advance recoverable from the sale of the collateral during the loan or advance.

But banks have also loaned business entities under a business mortgage scheme, where they take their machinery as collateral. This arrangement varies from one bank to the other though.

“Banks will benefit from extra lending, and increased lending will contribute to economic growth and job creation,” said Abdulmenan Mohammed, a financial expert with one and half-decade-long experience.

“It will stimulate the economy, which will encourage investment,” Yohannes Ayalew (PhD), vice governor and chief economist at the central bank told Fortune.

The 16 private commercial banks have collectively pledged  135.6 billion Br loan during the past fiscal year while the state-owned giant, Commercial Bank of Ethiopia (CBE), committed 94.5 billion Br in loans. The 17 commercial banks of the nation mobilised a total of 288.2 billion Br last year.

The new procedure is not full of merits, according to Abdulmenan.

“Banks will face extra risk using movable assets as securities: ascertaining ownership, movable assets are susceptible to lose, damage and wear and tear, and these assets require constant monitoring,” said Abdulmenan.

Eight months ago, Nigeria also announced the same procedures for granting loan after registering movable collaterals for micro, small and medium enterprises (MSME) in the country which were identified as lacking capital.

About a year ago, Uganda, a nation where 80pc of its population does not own land titles, thus initially excluded from accessing credit, also announced a similar strategy.

To manage risks from such loans, a new entity which will manage the process of registering these properties has to be formed, according to a senior bank professional who has worked in the area of credit.

“In many countries which introduced the procedure, they established a registration services bureau,” he remarks.


Published on Jan 06,2018 [ Vol 18 ,No 923]



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