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Banks asked to cut loan interest rate by half

The private sector is raising concerns that just rescheduling loan settlement will not have a positive effect for the endangered economic condition because of COVID 19.
Some of the business people Capital spoke stated that financial institutions should consider the cut up to half of the loan interest rate at least for three months to keep the health of the private sector.
They said that it is common that banks rescheduled loan settlement framework for their clients, not only on this bad time.
“It is one good decision that some of the banks rescheduling the loan settlement period,” they said.
But they added, “we are highly suffering on the situation that the country faces that we are also looking for loan interest minimization to pass this situation.”
They claimed that big businesses are already approaching for a huge crisis because their business is highly affected.
“We are expecting from banks to cut the loan interest by half for this coming three months,” one of the business elites, who runs several big investment and businesses, told Capital.
He said that it would be difficult for banks to cut all interests since they have also huge costs, but they have to consider easing the rate that they are now calculating on the loan.
Business elites recommended that now is the time to help each other and save the country. “We are paying wages without active business environment and provide support for those in need that might be directly related with the effect of the COVID 19. At the same time banks should play their role to contribute to calm the situation and support the post coronavirus economic shock,” they said.
Two weeks ago during their virtual meeting bankers request the National Bank of Ethiopia (NBE), to relax the loan rules to mitigate the economic effect that they face in relation with the outbreak of COVID-19.
Yinager Desie, Governor of NBE, told bankers that they have to consider slashing their interest rate.
“Banks should look their interest rate for loans that have its own role for aggravating the inflation in the market,” he said but it was not clear that his address is directly related with the current case or general recommendation.
Since the government decided to lift the 27 percent NBE bill that banks were expected to buy from their every fresh loan approval, banks minimized their interest rates on some credit facilities, however, the country’s loan interest rate is one of the highest.
Currently banks are providing several schemes to play their part to mitigate the adverse effect of COVID 19 besides direct donation for the fund mobilization committee of the government.
Economic experts supported the idea of the reduction of interest rate besides rescheduling the loan settlement. “Companies fixed cost is not reduced, while their usual operation has dropped. Due to that financial institutions should halt some of the interest rates for their customers,” they said.
Coronavirus has significantly affects the economic condition of the country like any other country who reported the global pandemic in their home country. The situation does not only affect the home country trade but the international business like export.
According to the recent policy working paper of the Ethiopian Economics Association the service and manufacturing sector would be highly affected by the outbreak of the virus than the agriculture, which is mainly carried out on household small scale level.


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