Banks claim they do not have a geography-based business model and are willing to serve any client anywhere in Ethiopia with the same credit products as long as they meet the necessary business, technical, and legal requirements.
However, according to a recent study by USAID, because Addis Ababa is the center of the country’s business activity, in 2020, 69 percent of loans has been originated there. Addis Ababa also has the most bank borrowers; the city has 38 percent of all bank borrowers and these borrowers account for 69 percent of all outstanding bank loans. The value of collateral attached to secure bank loans is typically 2x the loan’s original value.
This practice benefits bank profitability, asset quality, and financial strength and resiliency in the sector, but it comes at a cost, reads the report.
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