Loans and Advances

The Commercial Bank of Ethiopia extends various types of loans and

advances to the following business sectors:

• Domestic trade
• Import and export trade
• Agriculture
• Hotel and tourism
• Manufacturing
• Construction
• Transport
• Services (education, health, etc), and
• Others.
•

Acceptable collaterals to the bank are:

• Buildings/Houses
• The buildings/houses should be constructed within the city's
limits; and
• They can be used for residential purposes, as warehouses or
business organizations.
• Motor vehicles
• This includes trucks, tankers, trailers, combiners, public
transport, buses and automobiles
• Bank guarantee
• Local bank guarantee
• Foreign bank guarantee.

Unconditional Life Insurance at surrender value

1. Deposits at Banks

• Saving deposits
• Demand deposits, and
• Time deposits.

2. Merchandise (for merchandise loan only).

• The merchandise should be:

• Easily marketable
• Durable and
• Non-perishable items.

3. Negotiable Instruments

• Treasury bills
 • Government bonds
• Leased land
• Machinery and agricultural equipment
• Business mortgage.

Interest

• At present, CBE collects a 7.5% interest rate per annum on credit

facilities it extends.
• The CBE may vary the interest rate based on the Directive of the
National Bank of Ethiopia.
• In addition, as per the new Credit Policy, the Bank’s customers
may be charged various interest rates based on their:
o Loan repayment history
o Business strength
o Collateral strength and
o Other similar factors.

That is, customers who meet the Bank's performance parameters are
charged less interest rate, whereas the Bank will impose an additional 3%
penalty interest rate per annum on non-performing loans.

Documents required from customers during loan request

• A written application that clearly indicates, among others, the

amount and the purpose of the loan requested.
• Licenses (as appropriate)
o Trade and industry license specific to the line of activity
and renewed for the current operational year.
o Municipal license
o Investment license
o Registration certificate
o Others as applicable.
• Financial statements (audited as deemed necessary)
o Balance sheet
o Income statement
o Cash-flow statement
o If the customer cannot prepare the financial statements
and the requested loan amount is small, he/she has to
fill out the Commercial Credit Report (CCR) form, which
will be provided by the Bank, and
o Others.
• A business plan
• A project feasibility study (for new projects)
• An ownership certificate (title deed/booklet, construction permit,
etc.) for assets or merchandise offered as collateral
• Memorandum and Article of Association (for legally established
companies)
• Negarit Gazetta (establishment proclamation)
• An official letter of consent from the Board of Management
(where applicable)
• Authority to conclude loan contracts (for companies not specified
in their Articles or Memorandum of Association).
 • Power of attorney
• Management profile
• In addition, if the requested loan is approved, customers must
meet the following conditions:
o The borrower and the guarantor must sign loan and
pledge contracts.
o The collateral offered as security must be insured both in
the names of the Bank and the borrower.
o The borrower must be willing to register the collateral
with the appropriate government body.
o The borrower has to open a deposit account at the
concerned branch, if he/she has not done so, as specified
under each type of credit services. Back to Top

Types of Credit Facilities

Currently, the Commercial Bank of Ethiopia (CBE) offers the following

credit products:

• Term Loan
o Short-term loan
o Medium- and long-term loans (Project Loan)
• Overdraft
• Merchandise loan
• Agricultural loan.

Term Loan

• A term loan is a loan granted to customers to be repaid with

interest within a specific period of time.
• The loan can be repaid in periodic installments or in a lump sum
on the due date of the loan, as the case may be.
• This loan is granted in three forms, i.e., short-term, medium-
term and long-term loan.
• Short-term Loan
• Definition
• A short-term loan is a loan that has a maturity period of one year
or twelve months from the date the loan contract is signed.
• Purpose of the loan
• The loan is extended to finance the working capital needs and/or
to meet other short-term financial constraints of customers.
• Eligibility
• Applicants can be individuals and business entities engaged in
any type of business that can meet the following conditions:

The client must have been in the business for which the loan is
requested or in a related business for at least one year with a
permanent address.

• The applicant needs to have opened an account at the branch

where the loan is requested.

The applicant has to present the necessary documents required

 by the Bank.

The applicant must not have any record of default and misuse of
his checking account in the banking system.

Collateral

The security offered must be able to cover both the principal and the
interest of the loan.

Repayment of the loan

The loan can be repaid monthly, quarterly, semi-annually or annually in a

lump sum upon maturity, depending on the nature of the business and
cash-flow statement.

The periodic repayment amount incorporates both principal and interest.

Medium- and Long-term Loan (project loan)

Definition

A medium-term loan is a loan which has a maturity period exceeding one

year but less than or equal to five years from the date the loan contract is
signed.

A long-term loan is a loan that has a maturity period of five to fifteen

years.

Purpose of the loan

The purpose of the loan is to finance new projects, support the expansion
of existing projects, investments and meet working capital needs.

Eligibility

Applicants can be either new or existing customers. To be eligible for the

loan, customers must present the following:

For new projects

• A feasibility study
• Lease agreement and certificate, land holding-certificate and bill
of quantity and specification (if the project involves construction)
• A business license from authorized government bodies
• Memorandum and Articles of Association
• Proforma invoice (not exceeding two months)
• Equity contribution by the customer
• Curriculum vitae of the management group.
For existing projects

• A feasibility study
• Audited financial statements
• A list of fixed assets which include their book value and market
value
• A list of the market value of fixed assets to be purchased
• Projected financial statements
o Without project expansion
o With project expansion

For enterprises to be purchased from the Privatization Agency

• Bid documents
• Sales contract
• Bill of quantity and specification (if the project involves
construction)
• The curriculum vitae of the management group.

Collateral

In addition to the acceptable securities, customers have to offer the entire

asset of the project as additional collateral.

Repayment of the loan

Based on the nature of the project and projected cash-flow statement,

the loan will be repaid quarterly, semi-annually and annually.

The Bank may provide a grace period for the commencement of

repayments. Back to Top

Overdraft

Definition

An overdraft (O/D) is a credit facility by which a customer can withdraw

in excess of her/his/its current account balance up to the limit approved
by the Bank.

Purpose of the loan

The loan is intended to finance the day-to-day operational needs of a

viable business.

Utilization of the O/D facility

Applicants have to open a current account to utilize an overdraft facility.

The O/D account should have a proper turnover by way of withdrawals

and deposits. However, an O/D account should not be overdrawn.

An O/D facility is approved only for a period of six months and, in some
cases, for a year. Therefore, it has to be renewed every six months or
year.

The request for renewal must be presented to the Bank two months
before the expiry date of the facility.

Approval of request for renewal of overdraft is subject to fulfilling the

Bank's requirements, such as:

• Sound financial conditions

• Good operational results evidenced by acceptable financial
statements
• Satisfactory utilization of the O/D
• Stability of the collateral value
• In addition, during renewal request, the O/D account has to show
the credit balance.

Eligibility

Overdrafts can be considered for manufacturing, trading and service-

giving enterprises. To be eligible for the facility, customers should meet
the following conditions:

• The business must be in operation for at least two years.

• Applicants should have a record of satisfactory utilization of
current accounts for at least the year preceding their application
for overdraft facility.
• Applicants must have settled at least one term loan with a good
repayment record.
• O/D requests will not be considered for businesses with non-
performing credit status and/or currently blacklisted by the CBE
or any other bank.
• Customers' seasonal or temporary financial needs will not be
entertained by an overdraft.
• Customers' O/D accounts may be cancelled or converted to a
term loan (partially or fully) if they fail to properly utilize the
facility.

Collateral

An O/D facility can be approved against any collateral acceptable by the

Bank, except motor vehicles and machinery.
Loan Repayment

• In case of an O/D facility, interest is calculated on the amount

used by the customers.
• Customers have to pay the accrued interest regularly so that the
facility will not be overdrawn.
• By the time of the request for renewal, the O/S overdraft
balances have to be fully settled.
• The Bank can claim the outstanding balance of the O/D facility at
any time.

Merchandise Loan

Definition

• Merchandise loan is a credit facility provided by the Bank against

which the merchandise is held as collateral for the loan.

Purpose of the Loan

• The purpose of the loan is to overcome the cash-flow problem of

customers when money is tied up in merchandise.
• The loan is approved for a period of three months (90 days) or it
may be approved on a renewal basis.

Types of Merchandise Loan

• This is a merchandise loan which will be granted for a specified

short period of time
• This type of merchandise loan has a limit that is renewable every
six months.
• Customers have to forward their renewal request in writing two
months before the expiry date.
• In this type of loan, customers' account is credited when he/she
stores the merchandise.
• Merchandise is released upon the request of the borrower.

Loans Against Railway Receipts, Truck Waybills or Airway Bills

Back to Top

• Such loan is granted against acceptance of the evidence for

merchandise that is in the course of shipment transit by rail,
truck and air transport.
 • The evidence should be supported by original railway receipts,
truck way bills or airway bills.

Eligibility

• This type of loan is granted to prime customers or to customers

who are considered by the Bank as being highly credit-worthy
and should meet the following conditions:
• Submit financial statements, including projected cash-flow
statement, for at least one year.
• Open an account at the branch where they request the loan.
• Submit plans that justify the purpose and utilization of the loan.
• Prepare interim financial statements on a regular basis or as
requested by the Bank.
• Present an ownership title for the merchandise to be offered as
collateral, i.e.,
o Customs declaration for imported goods.
o Valid invoices checked with respective suppliers for
locally purchased merchandise.
o Internal documents like production report for
manufactured goods.

Types of Acceptable Merchandise for Pledge

• In order to be acceptable as security, merchandise must meet

the following conditions:
o The product should not be perishable
o It must be easily marketable
o Its price must be determinable and relatively stable
o The product must be insurable
o The Bank must be entitled to possessing the goods and
must have an unconditional legal right to sell them in the
event of default by the borrower.

• Some of the goods that are not acceptable as security for

merchandise loan are:
o Chemicals
o Packed foods
o Pharmaceuticals
o Batteries
o Butter
o Oil, yeast and other similar products.

Security Arrangement for Merchandise Loan

Merchandise offered as collateral might be kept at the Bank or at the

borrowers’ storeroom.

• If pledged merchandise is stored in a warehouse fully controlled

 by the Bank, it is considered to be under the sole control of the
Bank.
• If merchandise is stored in a warehouse owned/rented by the
borrower or a third party property, it is considered to be under
the dual control of the Bank and the borrower. In this case, the
condition of the storeroom should be acceptable to the Bank, and
the Bank should have unconditional access to the storeroom.
• Any expenses related to the warehouse and the safety of the
merchandise will be borne by the customer.

Repayment

• Repayments are made before the release of the pledged

merchandise as per the term and conditions of the loan contract.
• Customers have to deposit the proportionate amount of the
merchandise to be released.
• The tenure of the merchandise to be released should not exceed
90 days.

Agricultural Loan

Definition

Agricultural loan is a loan granted to customers who are engaged in a

production business.

Purpose

Agricultural loan is intended to finance working capital needs and

investments of customers involved in the sector.

Eligibility

Any individuals, enterprises and associations involved in the agricultural

sector can apply for this loan.

• For investment-related agricultural loans, customers have to

submit:
o Land-holding certificate
o Investment license
o Project feasibility study
o Equity contribution.

Loan Repayment

• The loan may be repaid monthly, quarterly, semi-annually or

annually.
• The Bank provides a grace period for investment-related
 agricultural loans.

Collateral

This loan can be approved against acceptable collaterals.