The National Bank of Ethiopia (NBE) has urged the state-owned giant, Commercial Bank of Ethiopia (CBE), to focus on providing working capital, leaving project financing to the state policy bank, the Development Bank of Ethiopia (DBE).
The central bank sent letters to presidents of the two state banks on Tuesday, April 18, 2017. The next day, CBE managers began informing applicants who applied for project financing to take their applications to the DBE. The move has created confusion amongst some of the business owners in the city, according to people close to the case.
On Friday, after officials from the central and managers from the CBE held discussions, both parties agreed for the CBE to clear all outstanding loan applications made for project financing, sources have told Fortune.
“The NBE issued this instruction with the primary aim of clarifying the new credit policy introduced in June 2015,” said a senior official at the DBE.
The new credit policy states that project financing covers long and medium term loans, ranging between 20 years and in cases of medium term loans for three to five years. Both terms include a grace period.
DBE has been tapped to provide loans for “permanent working capital,” availed before projects become operational. Once the projects are up and running, business can access loans from the CBE.
Short-term working capital loans are the business of CBE and will be paid in a one to two-year period, according to the 2015 credit policy.
After the issuance of the new policy, CBE had been engaged in both financing projects and working capital loans. The letter that was sent from the NBE to the Bank last week gave the latter a notice that it should only focus on providing loans to be used as working capital.
The new notice clearly shows the designated responsibilities of the two state banks.
“We’ve only received the order,” a DBE official told Fortune. “The detailed application procedures for the regulation will be outlined soon.”
But this seems unrealistic to one of the businessmen whose request for project financing for a new hotel is still pending at the CBE.
“There are issues with DBE’s capacity,” he told Fortune. “The Bank is not staffed with human resources and does not master as much financial strength as the CBE.”
During the last fiscal year, CBE disbursed 92 billion Br in loans, while DBE’s share was at 11.84 billion Br.
But Belehu Takele, acting communications manager at the CBE, asserts that CBE will keep financing projects until DBE builds its capacity.
“CBE will approve the pending loan requests for project financing,” said Belehu.
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