NBE suspends 8 banks from issuing bank guarantees

National Bank of Ethiopia (NBE) suspends about 8 banks from issuing bank guarantees for construction companies. Meanwhile, the Construction Contractors Association of Ethiopia (CCAE) has expressed its frustration stating that the government is not responding to the claim regarding challenges that the construction industry is facing.
In the press conference held on Wednesday March 17, leaders of the association said that they are forced to inform the situation to the media since the government is not responding to their frequent ask of intervention in order to solve the problems in their industry.
They said that for the last couple of months CCAE has written letters to get solution on the areas including price escalation, financial transaction and restriction on some banks to issue guarantee for bid and projects.
“We had written letters for relevant offices like the Ministry of Trade and Industry, NBE and others but they did not give us any response,” they claimed.
They said that since January, NBE has suspended about eight banks from issuing bid guarantee and advance payment bank guarantee and performance bondfor projects.
“Because of the decision of NBE, contractors are unable to use their collaterals that are already controlled by the suspended banks,” Yusuf Mohammed, member of Board of Directors of CCAE, said.
According to the information Capital obtained from the financial sector actors, NBE suspended some banks from issuing the banks guarantee since they reached at the maximum limit.
However the contractors’ association leaders argued that the central bank decision is made at the cost of contractors.
“We don’t have any role on the activity of banks but our asset has been frozen at a single bank because of the decision of NBE,” he claimed.
“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 said.
The association leadership indicated that the crunch occurrence was as a result of the Central Banks decision, which they believe is not the proper response to the issue.
Various types of guarantees provided in favor of a customer who owes bid bond, performance bond, advance payment or customs bond guarantees.
They have also indicated that the decision of NBE that limits the cash on hand, cash withdrawal and weekly transaction restriction have affected the construction industry.
Girma said that despite the NBE directives giving some space for such kind of businesses on the ground the situation remains different.
He claimed that banks are using this special treatment for some of their customers including contractors to access cash but it is not for all construction actors. “There are 22,000 contractors in the country but all of them have not benefited from the cash withdrawal,” he added.
Banks that have been suspended for further issuing of letters are both the youngest and those which have huge capital capacity.
Price hike
The association leaders have also complained cement price has artificially hiked and disappeared from the market. They said that the product is available in the black market with higher pricing but they are access from proper normal market remains scattered as if the products are not in produce.
Contractors have forced to buy cement on higher price to continue projects. “Now contractors needs price adjustment because of the price hike not only for cement but also other construction materials like rebar,”Girma said.
Seyoum Dawed, member of the board, said that the government should give proper attention for the sector and make available required finance including foreign currency to accelerate the production and availability of cement and other building materials that is boosting the economic growth of the country.
He said that because of not allocating hard currency for the sector material shortage, project delay is occurring.
“Because of the hard currency challenge most of finishing works, which mainly needs imported materials, is delaying and buildings are seen stranded without finishing,” Girma added.
Regarding the cement problem the association has written a letter for Ministry of Trade and Industry to come up with solution, while the case is not yet solved they said.
The association has also requested for adjustment that occurred on price escalation on the sector.
“We are not highly concerned that the problem might be escalated and layoff huge number of youths from work,” Zeleke Redi, one of the leaders of the association, said.
He claimed that the disappearance of cement is illegal involvement that shall be solved in collaboration with relevant bodies.