Hotel owners could soon face high interest charges if they fail to repay the loan they secured from commercial banks under the central bank’s proposed stimulus package in response to the pandemic of coronavirus.
Hotel establishments secured a loan of more than three billion birr from the central bank in 2019 after the epidemic crippled industry players, with hotels registering an occupancy rate below 2% in a short time after Ethiopia reported its first case of coronavirus.
It was part of the 15 billion birr stimulus package that the National Bank of Ethiopia (NBE) approved in response to the outbreak, with 12 billion birr loans earmarked for manufacturing, horticulture and microfinance.
The central bank made the loan available through commercial banks at an interest rate of 5%, but this was soon reduced by 0.5 percentage points. The difference was to be transferred to the commercial banks, which had no share in the loan that the central bank had initially granted to the hotel establishments.
Central bank officials expect the bank to collect the loan and repay it within six months of disbursement. Although the repayment period was extended for more than a year, borrowers failed to repay their loans on time, forcing banks to come up with a new strategy to recover the loan.
“Although some are repaying their loans on time, those who defaulted have reached a new agreement to change the credit to commercial credit with an interest rate of at least 13.5%, the minimum we could charge” , said Dereje Zebene, President of Banque Zemen.
Hotels are still lobbying the central bank to push commercial banks to extend the loan repayment period, although they have been unsuccessful so far. Through his lobby group, the Addis Ababa Hotel Owners Association, which has 120 active members, wrote a letter to the Addis Ababa City Tourism Board to find a way to support the establishments, citing that the sector is far from recovering from the effects of the pandemic. .
“We are asking the authorities to extend the repayment period with a low interest rate as we are still facing a slowdown in business,” said Aster Solomon, President of the Association.
Under the direction of Hirut Kassew (PhD), former Minister of Tourism, the Addis Ababa Culture and Tourism Bureau wrote a letter to the Ministry of Finance and the Central Bank, asking the authorities to extend the loan granted to hotels and tour operators.
“We are making efforts to win the hearts of officials in the ministry and the National Bank of Ethiopia,” Hirut said.
If hotels do not sign another agreement to change their type of credit from low interest to commercial credit, their property will be forfeited based on the agreement they entered into when they entered into the loan.