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CBE to reintroduce project financing
Teklewold Atnafu, Governor of the Central Bank

CBE to reintroduce project financing

A year after suspending mainstream project financing by Commercial Bank of Ethiopia, the National Bank of Ethiopia (NBE) has finally decided to allow the reintroduction of the loan services in the State-Owned banking giant CBE.

It is to be recalled that a year ago, NBE had issued a circular urging CBE, redirect focus on providing working capital loan, while Development Bank of Ethiopia (DBE) was mandated to provide project financing services unchallenged.

In this regard, as of this week, Teklewold Atnafu – Governor of the Central Bank–has issued a letter dated June 1, 2018.

“It revised the previous decision which allows DBE to focus only on project financing and CBE on working capital. It will be reversed until DBE reaches a higher financial capacity as well as structural competencies that can enable it to solely provide project financing.”

The letter which was sent to the president of both banks indicated that until DBE manages to boost its financial and structural capacity, CBE will continue to provide project finance for investments.

It is to be recalled that the Central bank’s earlier decision in 2017 to make project financing exclusive to DBE created a confusion within the business community. DBE was given the mandate to provide both medium and long term project financing. 

Since then DBE had been responsible for all sorts of project financing in the country.

In this respect, over the past nine months alone, DBE approved 8.3 billion birr in project loan, which is 2.7 billion birr below the target it set for itself. From this, 4.8 billion birr was disbursed during the period, which is still below the planned disbursement of 7.8 billion birr.

In addition, over the third quarter, DBE disbursed 1.9 billion birr from its initial plan of 2.5 billion birr. From this, 55.5 percent was disbursed to the manufacturing sector followed by a 22.7 percent and three percent financing made to SMEs in the form of lease finance and agriculture, respectively.

The Bank, on the other hand, has passed through a troubling year where its president, Getahun Nana tendered his resignation a few weeks ago.

DBE’s non-performing loan ratio is still far from the central bank’s 15 percent cap. The Bank, in its nine-month report also indicated that its NPL stands at 20.54 percent.