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By Yohannes Anberbir
Posted to the web on November 9, 2009 |
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November 8, 2009 ( ADDIS ABABA) — A huge loan last year from the Commercial Bank of Ethiopia (CBE) that allowed the Ministry of Works and Urban Development (MoWUD) to import 1,000 heavy duty trucks is giving the bank a headache.
The purpose of the loan was to bolster the small construction companies working for the government on various development projects.
The ministry transferred the trucks to construction companies with a five year term loan arrangement; however, failures to service the debt have led the ministry to commence confiscation of some of the vehicles.
A year ago, the bank lent over half a billion birr in support of the ministry's plan. The loans helped the ministry to import 1,000 trucks from China and transfer them to the construction companies. But the recent defaults led an alarmed CBE to confer with the ministry, which subsequently urged 39 companies to return the trucks.
A down payment of 30 percent and payment of the balance within five years were the criteria set by the ministry when the deal was agreed. In addition the contractors must continue giving service to the contracts at hand at a minimum rate and should prioritise government housing projects.
More than 800 of the trucks were transferred to companies who entered into an agreement with the CBE to service their loans every month. CBE warned companies every time they failed to pay an installment, but the high level of defaults forced the CBE to discuss the issue with the ministry, a source from the CBE explained.
CBE's concern prompted the ministry to televise an announcement a week ago urging 39 companies to submit the vehicles within 15 days. The companies will be liable to legal action if the trucks are not returned in good condition, according to the announcement.
Another tender of the ministry was aired at the same time, aiming at finding buyers for just over 100 trucks that remain unsold. But this time the ministry has attached more stringent requirements: purchasing companies must make a 50 percent down payment and pay off the remainder over a two year period. The ministry will also give priority to companies that are able to pay the full amount up front.
"I know some companies at one of our condominium construction sites are earning a minimum of 27,000 birr per month using these trucks, so it is hard for me to think that they are unable to pay their monthly dues," the Addis Ababa housing agency supervisor told Capital.
A veteran banker - formerly employed by the CBE, but now working in the private sector - explained that although supporting key government projects is one of the CBE's duties, the management should be capable of avoiding risks, and it should look beyond the guarantees of government institutions to assess the chances of successful loan recovery.
Capital's efforts to get a comment from the bank remained unsuccessful until this paper went to press.
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