Banks Ordered to Temporarily Suspend Lending in Ethiopia

Banks Ordered to Temporarily Suspend Lending in Ethiopia

Updated on
  • Unclear which loan categories affected by Aug. 11 directive
  • Banks suspend lending pending clarification from central bank

The National Bank of Ethiopia asked all commercial banks to temporarily suspend providing loans backed by collateral, such as land and buildings.

The NBE’s directive follows findings that the money is being used on the black market, State Minister for Finance, Eyob Tekalign, said on Shefer FM radio on Thursday. The security authorities and the central bank are taking action as part of measures to address the issue, he said.

It wasn’t immediately clear if the order, effective Aug. 11, affects corporate, personal or other loan categories. The banks have suspended all lending pending clarification from the NBE, according to people with knowledge of the matter who asked not to be identified because of its sensitivity.

The directive comes amid a civil war in Ethiopia’s northern region that’s complicating efforts to help the economy recover from the coronavirus pandemic. Annual inflation accelerated to 26.4% in July, the highest rate in a decade, while the spread between the currency’s official and parallel exchange rates has widened.

The central bank also ordered lenders to freeze the disbursement of the loans that had already been approved, according to the people. No explanation was given for the action that remains effective until further notice, they said.

“The move to suspend collateralized borrowing is likely aimed at preventing firms and individuals from attempting to monetize their assets quickly through bank loans,” Mark Bohlund, a senior credit analyst at REDD Intelligence, said in emailed responses to questions. It could “support the government’s access to domestic financing, which will be needed to maintain the war in the north,” Bohlund said.

Central bank Governor Yinager Dessie and Ethiopian Bankers Association President Abie Sano did not immediately respond to phone calls and text messages seeking for comment.

Source: Bloomberg.