Saturday, February 24, 2024
HomeLocal NewsBanks back NBE’s decision

Banks back NBE’s decision

The National Bank of Ethiopia’s (NBE) short order to suspend fresh loan approval and disbursement with selected type of collaterals is received with different views from the financial sector.
The text message sent by Frezer Ayalew, Banking Supervision Director of NBE, on Wednesday August 11 for financial firm executives ordered banks to suspend releasing any fresh loan loans for clients who use real estates and similar properties as collateral.
Bank executives that Capital spoke to about the case stated that it would be difficult to comment on the latest measure since there are there is no officially written circular from the regulatory body.
However, they underlined that the decision might be triggered to correct some economic mischievous that directly and indirectly benefit the banking industry and the country in general.
Some of bank leaders also said that despite there being no given timeframe for how long the decision will stay it may affect their activity.
NBE ordered banks to suspended loan provision for clients who use fixed asset as collateral.
According to the sector expert, the service on non fixed asset collaterals like sells contract that exporters mainly using are not prohibited.
“The behavior of dollarization in the economy is observed, the parallel market sudden spike and related issues are questionable that should have answers,” experts in the banking industry explain, adding, “The parallel market all of a sudden picked. Individuals are selling their properties and converted the birr to foreign currency to hoard it or smuggle it to abroad.”
One of the bank executive, who demands anonymity, explained that the major source of money for property sales and purchase is a loan from banks. “It may seem that the bank expands the loan provision that would push its profitability but actually harms the banks,” he explained.
One middle level bank president agreed with the idea that one of the long established bank leader said.
He told Capital that banks may expand their loan but he argued that the money that provided for clients should be transacted in the economy.
“If the loans are spent to buy fixed asset and those who benefited from the sales draw the money from the banking system and make idle by converting to foreign currency at illegal market or smuggled to abroad is staking the market and the economy. It is directly affecting the banking system and the economy,” he elaborated the possible challenges that may come to banks.
He added that in this circumstance rather than waiting directions from the regulatory body banks by themselves have to sense it and keep their business from harm.
Experts said that the rash property sales that may support by financing from banks may also create unnecessary bubble.
“In this condition the property price shall create unhealthy price spike but when situation calm down, it would not express the actual market rate,” they say, explaining that, “when banks are looking to dispose the loan they may be covered by the collaterals.”
They added that the current condition and the decision of the central banks have to be seen in different directions rather than focusing only on the prohibition.
They said that the parallel market’s unusual increment also brings several effects on the general market and may harm the majority of the pubic since traders shall increase price on basic goods as well as hoard them.
“If you know the real estate market is among the reason for the parallel market spike you have to take measures like what NBE has taken,” one of banks presidents said.
Executives said that they are unable to explain the impact at this stage. While they added that normally this agriculture season is a slack period in the financial sector.
In the first three quarter of the 2020/21 fiscal year, the disbursement of fresh loans (including CBE bonds) from the banking system was 123. 6 billion birr, while on the stated period banks collected loans (including corporate bonds) was 118.2 billion birr.
The private banks average share was 65.7 percent and 63.6 percent for disbursed loans and collection in the stated period respectively.
Most of banks that Capital approached expressed that they are now free from liquidity pressure.
Capital’s effort to get further information from Frezer was unfruitful.


Most Popular

Recent Comments

Be original – Al Nejash Media on Be original
[09.15.2018.00:15] Russian, Turkish presidents to discuss Idlib on September 17 – 含的兒子是古實、麥西、弗、迦南。 7 古實的兒子是西巴、哈腓拉、撒弗他、拉瑪、撒弗提迦。拉瑪的兒子是示巴、底但。 8 on MetEC outsources electromechanical work of GERD to Chinese firm
BREAKING NEWS: Azeb Asnake removed from EEP – Al Nejash Media on BREAKING NEWS: Azeb Asnake removed from EEP
Big fish Getaneh Kebede signed with Saint George – Al Nejash Media on Big fish Getaneh Kebede signed with Saint George