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The National Bank of Ethiopia has directed the Commercial Bank of Ethiopia (CBE) to stop approving all private investment project loans as of last Wednesday, April 10 and ordered investors to obtain loans from the state owned Development Bank of Ethiopia ( DBE) instead. This includes processed and new application requests.
Investors in agriculture, manufacturing, hotels and exporters went to CBE last week but were turned away.
In the past year loan requests have been significantly increased. This caused CBE to discontinue loans for water drilling and non-franchised hotels.
Next week CBE is expected to issue guidelines for loan applications under the new directive.
According to the directive CBE will continue providing working capital loans which has the purpose of financing the everyday operations of a company. However loans for fixed assets which are purchased for long-term use and are not likely to be converted quickly into cash, such as land, buildings, and equipment are being discontinued.
Belehu Takele Acting Communication Head of CBE told Capital that the decision is being made to enhance the country’s development. He pointed to a study suggesting CBE handle working capital for development loans.
A source at CBE said there are some potential problems, however. They pointed to some companies at the Hawassa Industrial Park who already started the process and now will have to restart it with DBE, costing them time.
Last September the Development Bank of Ethiopia conducted a study to identify the specific areas of government loans which allowed CBE to entertain working capital in the development projects across the country.
Recently DBE increased the interest rate from 9.5 to 12.5 for manufacturing companies who sell products on the local market but for the exporters the interest rate remains 9.5 percentg