CBE freezes loans for non-export projects

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The state owned bank, which recently reshuffled its management, has stopped giving out loans for non-export related projects. The new loan rules exclude all locally consumed items, goods, foods and service projects.
The loan exclusion is expected to slow the performance of steel and packed food services industries who import raw materials and ingredients from abroad.
The bank came to this decision after the hard currency shortage. Investors who are engaged in export or in the export value chain market are allowed to access the loan market.
CBE who has earned over one billion USD in the first quarter of this fiscal year has stopped and resumed project loans over the past three years.
Capital contacted the bank officials to ask the reason for stopping loans for non-export protects but the bank officials were not willing to respond to the questions.
Sources at the bank said that goal of blocking the loans is to earn more hard currency from the global market.
“We have seen some projects request loans for machines to start a business and then request a loan for raw materials to operate their business but they don’t have any value in hard currency earnings from exporting items. On the other hand there are companies who need loans to export items so we don’t have enough currency to entertain both investors and for the time we choose investors who export items to the global market.’’
CBE is freezing the loan while The National Bank of Ethiopia (NBE) is evaluating the amended directive FXD/47/2017 which addresses external loans and the supplier’s credit.
Currently several businesses like heavy industries in the chemical, metal and some food and beverage and garment companies owned by local investors are up for sale because they are unable to run their usual operation and at the same time the bank loans have to be paid.
Dr. Tekae Rediae, an economist, strongly opposes the freezing of the loans and said CBE’s action could cause more trouble.
“If you don’t give loans to the people who produce something for the local market you are killing entrepreneurship. If you don’t allow something to be produced here you are forcing the market to import it from abroad. How can you promote making import substitution products if you don’t give out loans for them. So for me freezing loan for local consumption products will cause people to find it from the black market which is dangerous for the consumers and for the market. It is good for us to let the market guide our economy.”
“The main problem I can understand from my experiences is that CBE is indulging in both commerce and investment banking and you cannot walk properly by working on both service, you must choose one and leave the other to another institution.’’
Hotel consultants also expressed concern that freezing the loan will cause the country to lose hard currency from tourists.
Kumneger Teketel, Lead Consultancy at Ozzie Business and Hospitality Group said “I hope this action is temporary, instead of blocking all non-export loans, CBE should select projects that will play a big impact on the economy.’’
“Forty percent of hotel income is in hard currency so more hotels means more dollars and pounds but how can we get more currency from hotels if we don’t let them get loans to build them’’ he added.
“Most international hotels are in the 20 to 50 percent of completion stage and freezing such project loans will directly affect the advantage of boosting the modern era of meetings, incentives, conferences and exhibitions industry. Over 35 international hotels are in the pipeline which will create job opportunities and generate income for the country and we must think to open another bank which will focus on investment related work to make loan allocation more consistent.’’