The National Bank of Ethiopia (NBE) is pushing back against calls for increased intervention in managing banks’ liquidity challenges. The central bank asserts that commercial banks are responsible for their own financial management, while its role is limited to providing regulatory frameworks and liquidity instruments.
This debate has arisen following concerns from financial sector experts about growing liquidity pressures on banks. These pressures include sudden deposit withdrawals and increased competition for savings from non-bank financial institutions, such as Savings and Credit Cooperative Societies (SACCOs).
Some experts advocate for the central bank to expand its oversight to identify potential risks to banks’ liquidity and implement preventive measures to safeguard financial system stability. They point to recent challenges faced by some banks, including Global Bank of Ethiopia (GBE), as evidence of vulnerabilities in deposit mobilization and liquidity management, particularly among small and medium-sized financial institutions.
While details of GBE’s recent difficulties remain largely undisclosed, sector sources indicate that sudden erosion of deposits, especially time deposits, was a significant factor. Although governance issues were also identified at GBE, liquidity management has become a broader concern for several emerging banks.
However, NBE Chief Economist and Vice Governor Fikadu Digafe stated that the central bank already provides several support mechanisms and expects institutions to manage their liquidity based on their capacity and business strategies.
“As a basic principle, banks are established by shareholders with the objective of making profits while operating under the rules and regulations set by the central bank. They know their responsibilities and what is expected from them,” Fikadu told Capital.
He highlighted that the NBE has introduced various liquidity management tools, including the interbank money market, standing facilities, and emergency liquidity support mechanisms.
“We have put instruments, codes of conduct, directives, and standing facilities that banks can use to fill their liquidity needs. There are also liquidity and reserve requirements,” he explained.
According to Fikadu, managing deposits, interest rates, and daily operations remains the responsibility of bank management and boards of directors.
“The question is what a bank will do regarding the rise of deposit interest rates and how it will manage its business. The responsibility of running the bank remains with the institution itself,” he emphasized.
This discussion comes shortly after the NBE removed former Global Bank of Ethiopia CEO Tesfaye Boru following a special inspection that uncovered regulatory violations.
The central bank reported that the inspection covered corporate governance, lending practices, human resource management, foreign exchange operations, and overall financial management. The findings revealed deficiencies and breaches of regulatory requirements and internal policies.
The NBE stated that the bank’s board and senior management acknowledged the findings and submitted a corrective action plan. However, the regulator deemed the issues sufficiently serious, especially considering previous warnings issued to Tesfaye, to necessitate stronger action.
Consequently, Tesfaye was removed from his position, effective July 28, 2026, and banned for five years from holding senior executive or board positions in any Ethiopian financial institution.
On Friday, August 7, GBE announced it had implemented administrative measures but did not provide further details.
Meanwhile, experts have expressed concerns about the competition between SACCOs and banks for attracting deposits.
Industry sources indicate that some SACCOs are offering interest rates as high as 35 percent on certain savings products, significantly exceeding the approximately 26 percent offered by commercial banks on time deposits.
While acknowledging the crucial role SACCOs play in expanding financial access and serving communities underserved by traditional banks, experts argued that aggressive deposit mobilization by SACCOs could put additional pressure on banks, particularly smaller ones.
They also questioned whether the current regulatory framework for SACCOs adequately addresses their impact on the broader financial sector.
Fikadu explained that SACCOs are not regulated by the NBE because they are not classified as deposit-taking financial institutions under the central bank’s mandate.
“SACCOs have never been under NBE regulation, so the central bank has no role in regulating them,” he stated.
He maintained that liquidity within the banking system remains under the central bank’s supervision and that monetary policy tools enable the regulator to manage inflationary pressures.
“We can monitor liquidity at banks, and inflationary behavior is fully controlled through the monetary system. Since currency circulation occurs either within or outside banks, controlling these channels allows us to manage liquidity,” he explained.
Nevertheless, experts contend that as Ethiopia’s financial sector expands and competition intensifies, enhanced coordination among financial regulators will be essential to safeguard financial stability and maintain public confidence in the banking system.
