Policy tweaks surge the T-bill market

The policy shift on the Treasury bill (T-bills) market taken by the central bank is paying off exponentially as the outstanding amount spikes by almost four folds in the past fiscal year compared with the preceding year.
The annual report of the National Bank of Ethiopia (NBE) which assesses the economy of the country indicated that at the end of the 2020/21 fiscal year, the total outstanding T-bills amounted to 116.6 billion birr, which is north of 391 percent higher than the preceding fiscal year.
It is to be recalled that the central bank had changed its policy direction on the T-bills market and made it a biweekly trade which was to be driven by the market than the previous fixed interest rate.
In its annual report, NBE stated that the surge of the T-bills, which is one of the primary money markets, was mainly attributed to the policy change on the issuance of T-bills since December 2019.
The annual report of NBE stated that during 2020/21, the total T-bills offered to the T-bills auction market showed a 42.9 percent increment and reached 330.7 billion birr while demand for T-bills increased 17.1 percent to reach 284.8 billion birr.
This indicated that the market was undersubscribed by 45.9 billion birr (13.9 percent). Thus, the amount of T-bills sold during the fiscal year was 238.8 billion birr which was lower than the demand by 46 billion birr.
The 2019/20 total outstanding T-bills was 23.7 billion birr which is significantly lower than the past fiscal year amount.
“Commercial Banks’ participation in the T-bill auction market has shown significant improvement and accounted for 52.0 billion birr or 44.6 percent of the total outstanding T-Bills where that of non-bank institutions stood at 64.5 billion birr or 55.4 percent,” the annual report reads.
The average weighted yield of all types of T-bills increased to 7.97 percent from 4.54 percent during the review period. The highest yield was recorded for the 364-day T-bills and the lowest 28-day T-bills with a corresponding yield rate of 9.03 and 6.83 percent, respectively.
The annual report of NBE it has also shown that the total resources mobilized by the banking system in the form of deposit, borrowing, and loan collection went up 51.5 percent and reached 505.2 billion birr at the end of 2020/21, “partly bolstered by the NBE’s Legal Tender Protection Directive that restricts cash holding and cash withdrawals as well as the demonetization measure undertaken during the review fiscal year.”
As result, the total deposit liabilities of the banking system rose to 1.4 trillion birr, witnessing a 30.3 percent growth.
Of the total deposits, saving deposits accounted for 60.3 percent, demand deposits 32.4 percent, and time deposits 7.3 percent.
Saving deposits showed a 38.7 percent increment while demand and time deposits registered 23.4 percent and 3.9 percent growth.
“The share of private banks in total deposit mobilization increased to 45.7 percent from 42.6 percent last year due to their opening of 749 new branches. Meanwhile, Commercial Bank of Ethiopia alone mobilized 54.3 percent of the total deposits due to its extensive branch network,” explained the report.
It added that raising funds through borrowing remained insignificant as most of the banks were sufficiently liquid due to increased deposit mobilization and collection of loans, “their total outstanding borrowing reached 84.2 billion birr compared to 80.4 billion birr a year earlier due to higher borrowings by the Development Bank of Ethiopia.”
Of the total borrowing, domestic sources accounted for 81.3 percent and foreign sources 18.7 percent. Net borrowing stood at 3.7 billion birr of which 98.7 percent was from foreign, which is for public banks, and 1.3 percent from local sources.
Moreover, banks loan collection was 186 billion birr in 2020/21, showing only 1.5 percent increments. Of which private banks collected 65.8 percent of the total loan disbursed.