EBA pleas government for intervention on bank guarantee suspension

Ethiopian Bankers Association (EBA) has asked the government to intervene on the latest measure of National Bank of Ethiopia (NBE) on suspending some banks from issuing bank guarantees.
NBE, the regulatory body, had suspended some banks on providing different bank guarantees for their clients in relation with reaching their maximum limit.
Bankers, who demand anonymity told Capital that members of EBA, which represents bank presidents’ had discussed the issue in their meeting to which they arrived to a consensus that the government must intervene on the case since the issue is not only aligned with the regulatory body.
According to the information, most of late comers and one long established bank; in total six, have been suspended by NBE to issue a guarantee.
“Conceivably these banks had provided huge amount of guarantee with less response and that is the responsibility of NBE to control them, but the government should also understand their contribution to the economy because of the guarantee they provide,” one bank president, whose firm is not part of suspended banks, commented.
He argued that these banks have been contributing towards the country’s development since majority of the guarantees have been given to projects that are owned by government. “If such kind of service was not provided by banks, developmental projects may have not gone as per the target,” he added.
Other big bank leader also said that the motive of the intervention that EBA demanded is that the government should understand the market and current situation in the country.
Projects have been in difficulties with associated instability in some area that contributed for delays. “For instance projects like roads are carried out in different corners of the country including remote areas, which is highly vulnerable to fall victim, thus pressurizing contractors to become unable to run projects as per the agreement,” he explained.
According to experts in the banking industry, similarly inflation has badly affected projects; meanwhile price evaluation from clients mainly from government has not been coming in appropriate time. “The price escalation has also contributed for delays on projects,” they explained..
Bankers said that as a result the government should be part of the problem and at the same time contribute its part for the solution.
Capital sources indicated that the letter that was sent to the federal government via EBA was issued about a week ago. However, so far there has not been any response from the government side.
Recently, contractors had claimed that they have fallen victim to the decision of NBE after it took measures on the banks.
Contractors via their association, Construction Contractors Association of Ethiopia (CCAE), said that for the last couple of months CCAE has written letters to acquire solution on the areas including; price escalation, financial transaction and restriction on some banks to issue guarantee for bid and projects.
They said that since January, NBE has suspended few banks from issuing bid guarantee and advance payment bank guarantee and performance bond for projects.
“Because of NBE’s decision, contractors are unable to use the extra amount on their collaterals that are already controlled by the suspended banks,” Yusuf Mohammed, member of Board of Directors of CCAE, said.
“Based on the measure of NBE, contractors shall not participate on bid that requires bid guarantee bond besides accessing advance payment guarantee,” Girma Habtemariam, President of CCAE expressed.
Some of the banks included under the NBE temporary suspension are; Enat, Abay, Wegagen, Addis International, Lion banks.