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The limit of outstanding loan growth rate that the National Bank of Ethiopia (NBE) introduced instantaneously after the October 11 devaluation has created claim on banks particularly on the new comers.
On the aim to manage the possible inflation that is expected after the 15 percent birr devaluation, NBE has introduced various monetary policy mechanisms to manage the money flow in the market.
Improving minimum saving interest rate by four percent to seven percent and limiting the outstanding loan growth rate of banks to 16.5 percent are some of the major measures that NBE introduced following the devaluation.
These kinds of actions may control the money circulation in the economy, according to experts.
However the banking industry actors that Capital interviewed stated that the limitation on the loan provision would have various side effects on the financial industry and the economy in general.
“It is obvious that the banks profit growth rate will be affected,” said experts.
“It is expected that some of the new and even major private banks shall register lower profit than the exceeding year,” experts added.
Young banks are claiming that they are the major victims on the new loan growth rate limitation.
Experts said that the banking industry is actively working in the first months of the budget year particularly on the lending sector to conclude the year with sound performance. Due to that, in the first quarter of the budget year most of the small banks have already reached on the maximum limit that NBE imposed a week ago.
According to sources, meanwhile NBE introduced the new loan percentage limitation a week ago; it is applicable as of the beginning of the budget year. “It means some banks’ particularly small banks outstanding loan as of July 8 now shall reach 16.5 percent,” experts said.
Experts in the banking industry said that the effect will not stand only on small banks but other big banks established about two decades ago will be affected since their profit is derived by loan provision.
According to the NBE new policy, banks loan provision for businesses excluding export sector will be limited to 16.5 percent from the preceding year. The trend was about 30 percent in the past years, according to experts.
Few weeks ago NBE has introduced the National Financial Inclusion Strategy that aims to boost the financial industry in the coming three years of the GTP.
However experts said that new loan limitation is against the national strategy since it will discourage banks to minimize their costs. Banks will focus minimizing their costs to keep their profitability than investing on branch expansion and working aggressively to expand their deposit mobilization.
“Banks have to provide the mobilized deposit as a loan to be profitable and pay interest for depositors, while they will not be interested expanding the deposit mobilization due to that it will not be transferred for borrowers based on the new limitation,” experts said.
“I think the government will not continue on this limitation policy since it will be a barrier for the financial inclusion strategy,” an expert said.
However experts said that the new scheme has also positive effect on the export sector.
The NBE new policy is not limiting the loan related with export businesses.
“As a bank we prefer to work with exporters since they are coming with the hard currency that makes the bank beneficiary,” a bank expert said.
“Importer is coming with only hard currency demand, which is highly scares, due to that the banking industry is more advantageous when working with exporters,” the expert added.
“Since some small banks already reached on the maximum limit they have to focus on the export sector to keep their profit,” experts added.
But they claimed that the capacity of the country on the quality, volume and competitiveness of the export product is low.
“Coffee is the major export item of the country, but it is known that how much the country produce and the quality is also the other issue to sell it on competitive rate,” experts said.
It is applicable for other agriculture and manufacturing sector, according to experts. “To boost the export sector the government has to work on expanding the export sector production to gain the expected result,” experts said.