Banks want NBE bill lifted

Many private banks are not comfortable with the National Bank of Ethiopia’s (NBE) five percent interest rates on deposits and the requirement that they purchase 27 percent of NBE bills every time they pay out a loan. Now they are asking for the requirement to be dropped or interest rates to be raised.
The banks also are giving the option to NBE to use the Development Bank of Ethiopia’s loan service if the NBE lifts its mandate that NBE bills be purchased.
The Ethiopian Bankers Association says interest rates should be two percent higher than they are.
“Honestly speaking NBE is changing a lot of regulations quickly, but I hope they see that the deposit amount really needs to be increased,” an association representative said.
Private bank representatives say they could handle financial services more efficiently if they were allowed to perform the tasks currently being handled by the Development Bank of Ethiopia.
Solomon Assefa, Vice President of Birhan Bank said, “DBE’s nonperforming loans (NPLs) were near 40 percent last year as opposed to three percent for private banks. Now our deposits go to DBE but they are having problem with large projects they financed because of defaulted loans. If the government regulates the interest rates for mega projects in manufacturing, agriculture or construction we can provide good service.
Economist Derje Degfew says changing the rule or dissolving DBE may damage the country’s economy.
“Private banks are more oriented to profit. If they conduct the work of DBE they may not give priority to financing agriculture or other sectors which the country needs so it is better to have a strict policy.”
In 2011 NBE mandated that all banks except the Commercial Bank and Development Bank, both of which are state owned, buy 27 percent of NBE bills for every loan disbursement at a three percent interest rate with a five year maturity period.
Banks have claimed that the NBE bills shrink their liquidity and smash their capacity to provide loans for clients. They have also argued that the three percent interest rate goes against the minimum market rate that NBE itself imposed. When the directive, ‘MFA/ NBE BILLS/001/2011’, became effective the minimum interest rate was five percent it then increased to seven percent when the birr devalued by 15 percent along with other major hard currencies.