New commercial code stirs delay between banks, foreclosure

Bankers express concern over the new commercial code citing that it will present challenges when foreclosure arises.
On the latest meeting with the regulatory body, National Bank of Ethiopia (NBE), the president of Ethiopian Bankers Association and President of the state owned financial giant Commercial Bank of Ethiopia, Abie Sano, expressed his concern by underlining that the banking foreclosure proclamation, property mortgaged or pledged with banks proclamation no 97/1998, is in danger due to the newly in placed commercial code which replaced the over a half century law.
“The proclamation was initially established to make the credit scheme run smoothly, but now legal experts inform me that the new commercial code has a vague article on the issue,” Abie said.
He said that when creditor banks prepare for foreclose a property that was placed as credit collateral they are facing legal challenges, “properties are frozen by the court when banks proceed to foreclosure.”
He said that member banks are also coming with similar cases to the association, “I think it will be a challenge for the sector and the nation as a whole.”
Article 3 of the 1998 proclamation states that an agreement authorizing a creditor bank with which a property has been mortgaged or pledged and whose claim is not paid within the time stipulated in the contract, selling the said property by auction upon giving a prior notice of at least 30 days to the debtor and transferring the ownership of the property to the buyer, shall be valid.
“A creditor bank which, prior the effective date of this Proclamation, has a claim on property mortgaged or pledged with it, may sell the property by auction upon giving a prior notice of at least 30 days and transfer the ownership of the property to the buyer,” article 4 of the same proclamation reads.
Article 9 also stated any suit or decree on execution pending before a court prior to the coming into force of this Proclamation may be terminated upon application by the creditor bank with which the property has been mortgaged or pledged and the bank may sell and transfer the property to the buyer in accordance with this Proclamation.
However, experts stated that the commercial code has put unclear articles regarding the involvement of courts that may delay the process of banks to foreclose properties.
Experts said that when the property mortgaged or pledged with banks proclamation was ratified separately as a provision behind the commercial code it targeted to protect banks from embattlement to repossess their resources, “but the new commercial code has not taken into consideration the 24 years old foreclosure proclamation.”
They added that it has now created a gap on the foreclosing procedure, “debtors now evoke the new code since as a legal procedure the new law has the position for application.”
Legal experts like Daniel Getnet expressed that the government must act immediately to protect public property which are not only bank assets.
Nonetheless, there is a legality issue on the proclamation which strongly backs banks.
“In the country the economy and financing scheme is mainly supported by a trust linked with collateral. If it will not continue as healthily as the previous experience it will pose a challenge to the economy,” Daniel explained.
At the event Yinager Dessie, Governor of NBE, reminded that the regulatory body has ruled for banks to focus on loan collection and would not tolerate debtors particularly major ones.
“We have directed you to take measure up to foreclosure for poor performing debtors and some of you are doing well,” he said, adding, “It has come to my attention however that when some banks go for foreclosure they are facing challenges.”
The Governor said that he heard about the issue just a week ago when the claim came to the regulatory body and promised that it will be solved with relevant government bodies.

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