Banks are facing significant challenges in collecting the loans they have provided due to security threats in various areas of the country. As a result, the number of bad loans is on the rise. The National Bank of Ethiopia, the regulatory body for financial institutions in the country, has highlighted these challenges faced by the banks in relation to loan provisions.
During a discussion forum titled “The Impact of Credit Provision on the Private Sector,” held on April 11, 2024, Belete Fola, the Banking Supervision Directorate of the NBE, addressed the issue. Fola emphasized that borrowers in unstable areas affected by security threats are defaulting on their loans, leading to an increase in bad loans and a decrease in the loan collection rate. One of the major challenges highlighted by Fola is the reasons provided by borrowers for their failure to repay loans, as well as the credit limits imposed by the National Bank.
In Ethiopia, commercial and development banks, along with small financial institutions, play a crucial role in providing loans to commercial companies. However, these borrowers face difficulties in realizing their full potential due to financial problems. The lack of funds becomes an obstacle for them to introduce new products, offer services, and remain competitive.
Mesenbet Shenkute, the President of the Addis Ababa Chamber of Commerce and Sectorial Association (ACCSA), expressed concerns during the forum about how financial challenges hinder the private sector’s ability to innovate and be competitive.
“Lack of transparency in loan terms and conditions, lengthy loan approval processes, high interest rates, and limited loan options are some of the challenges faced by borrowers,” she stated.
It is worth noting that commercial banks in Ethiopia mainly provide small and complex loans to the private sector. Surprisingly, out of the country’s population of 120 million, only 3.1 million individuals have been able to access loans.
