Ethiopia suspends loans using asset-based collateral, citing 'economic sabotage'

Aug 12 (Reuters) - Ethiopia’s central bank has issued a directive temporarily suspending all lending by banks that uses assets such as buildings as collateral, officials said in interviews with local radio that aired on Thursday.

The explanation given for the move was what one official called the “economic sabotage” taking place, although it was not clear what he meant by this.

The suspension is an unusual move that will make it harder to take out loans, which could in turn freeze up the credit market.

The governor of the central bank and representatives from the finance ministry did not immediately respond to requests for comment

“A directive by the National Bank has been passed to banks to temporarily, until further notice, suspend lending using houses, buildings, and other assets as collateral,” Frezer Ayalew, a director at the central bank, told privately-owned Sheger Radio.

In a separate interview, state minister of finance Eyob Tekalign told Sheger: “When you see that economic sabotage is purposely taking place, you immediately take measures because it destabilises the economy”.

Eyob did not elaborate. But he added that the National Bank of Ethiopia - the central bank - had decided on the measure following collaboration with security agencies. (Reporting by Dawit Endeshaw in Addis Ababa Writing by Ayenat Mersie in Nairobi Editing by Frances Kerry)