Ethiopia’s PrivateBanks Oppose New Central Bank Directive
November 2, 2017 – Following the devaluation of Ethiopian birr by 15 percent, the National Bank of Ethiopia (NBE) issued a directive for commercial banks to channel all the windfall earnings they generated from the sale of foreign currencies to the central bank.
Ethiopian commercial banks believe the directive could harm them, but NBE says it will help stabilize the economy.
Some experts argue that the move by the NBE to take all windfall earnings from them is not reasonable.
On the other hand, NBE told commercial banks to reduce the amount of loan they give for local purposes, except for the export trade.
At the beginning of the second Growth and Transformation Plan (GTP-II) period the bank issued its five-year financial strategy for commercial banks.
In the directive, commercial banks were told to increase the amount of loan they provide by 30 percent annually.
However, after the devalution, a new directive was issued limiting the amout of loan to be issued for local purpose to grow only by 16.5 percent annually.
Chairman of Board of Directors of the United Bank, Zafu Eyesuswork Zafu, said this measure will affect the growth of commercial banks by compelling them to reduce the amount they will collect in saving. It will divert the banks to focus on fixed time deposit.
At the end, this would raise question on the success of the goal set for commercial banks to increase their number of branches by 25 percent annually, he said.
Currently, all commercial banks in Ethiopia have a total of 4,000 branches.
Commenting on this issue, Chief Economist and Vice Governeor of the National Bank of Ethiopia, Dr Yohannes Ayalew, said the reduction on the local loan growth rate was made to focus on export trade.
It is also aimed at preventing inflation, he added. Still no limit has been made on loan for investors enegaed on export trade.
In the directive issued by the NBE after the devaluation, commercial banks were told to transfer 30 percent of their foreign currency earnings to the government and the remaining 70 percent to use themselves.
Commercial banks are unhappy by the measure stating that it will affect them to cover their cost for employees and other related spending.