The National Bank of Ethiopia (NBE) freezes collateral-based loans for indefinite period of time. The decision is targeted at weakning the parallel market and drying source of cash for it.
There has been attempt to dollarize a lot of cash in the last two months, a state of affairs which the officials of NBE want to disrupt by reducing cash-based activities in the economy.
The historic-high gap between the parallel and the official market, reaching as high as 50pc earlier this month, is the immediate reason for the freezing of loans by the NBE. The measure was communicated to the executives of commercial banks and microfinance institutions through text message, according to sources.
Ever since the effectiveness of the freezing, many factories have been forced to cut production due to shortage of working capital and inability to process overdraft loans for daily activities. Many have been also forced to revise their expansion plans because of this.