Bankers express that they are optimistic over the new cards dealt to them in the form of a recently imposed directive of purchasing a 20 percent treasury bond of the National Bank of Ethiopia (NBE) for fresh disbursement of loans and advances. Consensus across the board from the financial experts is that the new directive will not have long life.
Unlike the infamous NBE bill which was repealed in November 2019, a majority of the financial institution leaders welcomed the latest government move citing they concur with the decision in light of the bigger picture of protecting the nation from uncertainties that occur from external and internal factors.
The central bank a couple of weeks back issued a directive ‘MFAD/TRBO/001/2022’ which became effective as of November 1, 2022.
As per the new directive, all banks except Development Bank of Ethiopia (DBE), a state owned policy bank, are now set to purchase a treasury bond for their loans and advances.
The treasury bonds that shall be issued to each bank on a monthly basis have a maturity period of five years and each bond has two percentage points higher than the minimum saving deposit rate that is now seven percent.
The directive said that the government shall pay the interest accrued on the bonds on an annual basis.
This is the second by its nature according to experts who compared the latest government move with the ‘MFA/ NBEBILLS/001/2011’ directive introduced in April 2011 which forced private banks to buy 27 percent of NBE bills of their individual loans and advance disbursements at a maturity of two percent lesser saving deposit interest rate. The NBE bills directive was effective for eight years and seven months up until its scuffing in November 2019.
However bankers were adamant that the current directive would not have the lifespan of the former directive.
Bankers who demand anonymity recalled that when the central bank introduced the new directive to financial institutions the general opinion given by financial sector leaders was that banks were compounded by difficulty following the move at the time.
This is however not the case with the current directive, underline financial gurus such as the likes of Eshetu Fantaye, President of Ahadu Bank, and Asfaw Alemu, President of Dashen Bank, amongst other leaders who feel that now the priority is primarily the nation.
“It is clear that it may have pressure with regards to financing customers in the long haul but it is however not as hotly contested as the 27 percent NBE bills,” Eshetu, who served different public and private banks in senior positions, commented.
Some commentators, who closely follow the financial sector, argued that the current NBE decision was different when compared to the reformist government’s agenda. They said that the government is highly keen on boosting the private sector and has even expressed interest for the public bank’s loan portfolio to be balanced for the private sector.
However, Eshetu stressed that its crystal clear that the government is hard pressed by external partners like the International Monetary Fund (IMF) and the World Bank who are pressuring the government, in addition to challenges that the country is facing. “When the challenges that the country is facing are contrasted with NBE’s decision, the burden seems light and the move will not be implemented for long in my view,” expressed Eshetu.
In congruence, the other financial guru, Asfaw of Dashen, agreed with the above comment stating, “Financial institutions are public assets that directly or indirectly working for the country, so they are responsible in supporting the nation. Financial firms only generate better profit margins when the country is at peace, thus we have to look at the bigger picture.”
With regards to the life span of the directive, Asfaw said, “I my view, the directive will be short lived.”
Asfaw also cited that such moves have financial supply implications stating, “Nonetheless we will abide by the new directive as we did the other directive, but the new one will not last in effect as its predecessor.”
“It may have a linkage with the government macroeconomic issues but when it became effective, the relevant body has to also now engage on the needed responsibility to correct economic errors,” Asfaw explained his expectation from policy makers.
Eshetu said that it is clear that the new directive will not have long life compared with the 27 percent NBE bills, “When the NBE bill was imposed, the financial firms had huge liquidity which did not have an effect on them up until 2014. After that however, the implementation of the directive extended banks’ loan to deposit ration climbed to 110 percent compared with the sum up of bond and loans which hampered the various banks’ day to day activity.”
On similar opinions, the President of Ahadu bank said that the government has to work strongly to stabilize the economy including managing the foreign currency generation properly, stating, “In my view, the economy is highly dollarized. The government is not adequately regulating the foreign currency, which is a major challenge for the economy, generation.”
He added that the government should have strong commitment to impose tight controls on the foreign currency regulation and fiscal policy.
“I think when the government imposes such kinds of directives it has to have follow up homework to make an adjustment at the macro level,” Dashen Bank’s president and deputy president of Ethiopian Bankers Association stated.
Eshetu reminded that one of the first demands of international partners like IMF when the Home Grown Economic Reform became effective was for the government to ease the NBE bills.
He said that as per the improving situations catalyzed by the peace deal, the pressure imposed by international partners will be eased and accessing external finance will flourish and as a result the government will cut the tail short on the new directive.
“By the way, the bond by itself is expensive and not conducive for the government, and preference will be given to other alternatives like financial sources from external partners, in due time,” he expressed his views on the matter.
Unlike the NBE bills, the interest rate for Treasury bond is two percent higher than the saving deposit rate, while the prior directive had the interest rate of two percent lower than the saving deposit rate.
Experts shared similar views across the board citing that the move was necessary to provide additional funds to keep the country’s economy from going downhill.
Asfaw highlighted that the fund secured from banks may flow to some sectors that need finance, stating, “The money will not be left idle and government will device appropriate measures to manage it for a positive impact to the economy.”
Regarding the directive lifespan some pundits are not confident that the new bond would end short.
Eshetu argued that when the government starts getting additional funds from external partners the relevance of the bond will not be feasible, “20 percent has a huge impact on banks besides other existing instruments like reserve requirement, one percent portfolio investment on DBE bond and liquidity requirement.”
“It will affect the economy and the private sector, if the government demands to continue with the new directive,” he added.
He appreciated that unlike the previous directive the latest one is considering the Treasury bond to be included under liquidity requirement, which is 15 percent.
According to the investment on DBE bonds directive which became effective on September 1, 2021, a commercial bank shall annually invest a minimum of one percent of its outstanding loan and advance in DBE bonds until the aggregated bond holding equals 10 percent of its total outstanding loans and advances.
Regarding stable liquidity, Asfaw said that if it is measured in terms of the NBE rules, banks including Dashen are in good condition.
“But if we are talking about liquidity in connection to loans and advances, I think banks are not in a good position,” he elaborates adding that sometimes there are funds like a resource aligned with treasury bills that makes the bank liquid but in actual terms it may not be available for advances or loans.
Bankers in harmony over government’s directive to keep economy at bay
Tele partners with GETFACTet to empower the young generation
Ethio telecom signs a partnership agreement with the American based GETFACT Ethiopia (GETFACTet) to jointly undertake the Brighter Generation program which will provide various trainings to students of high schools so as to help them develop their skills by utilizing digital learning centers.
The partnership agreement made by the duo is said to play a crucial role in creating strong partnership and cooperation schemes in working together to enhance and meet mutual interests and objectives of the digital centers. The collaboration will foster technology transfer through the involvement of professional diaspora and Ethiopians living in various parts of the world.
In line with this partnership agreement, GETFACTet will provide various short term and dynamic trainings on communication, language, critical thinking, leadership and computer programming by coordinating Ethiopian diasporas living in different parts of the world so as by supporting the Ethiopia’s educational enrichment initiatives thereby producing loyal and competent citizens who would love and serve their country.
Ethio Telecom, on its part expressed that it will provide the required professional and technological supports that help properly provide the training virtually and in person as needed through the digital learning centers it has already established earlier.
In line with the agreement, in the time ahead the two parties will work in collaboration to fulfill the required inputs for the digital learning centers, to provide power supply options and other necessary materials.
GETFACTet Ethiopia is an organization established by Ethiopians and Diasporas living abroad with a view to promoting the good image of Ethiopia and to amend the foreign media’s negative perceptions about Ethiopia across the world by providing a right information.
Directive to pave way for exporters to sell coffee in foreign currency locally
Ethiopian Coffee and Tea Authority (ECTA) drafts a directive that would allow value added coffee exporters to sale their products locally in foreign currency.
The directive that was tabled for further feedback from stakeholders, indicated that when enacted, value added coffee exporters will be at liberty to sale their export standard coffee to those having the legal rights to hold foreign currency, such as through the electronic system including credit cards.
For this directive to see the light of day, the financial sector’s regulatory body, National Bank of Ethiopia (NBE), is said to give the green light, for the globally acclaimed Ethiopian coffee to be sold locally in foreign currency.
Similarly, the authority is said to monitor the operation of exporters trading locally.
Currently, as per a special permit given by NBE, roasted coffee exporting company, Wild Coffee Ethiopia, has been engaging in the sales of its high quality export coffee locally, in foreign currency.
Gezahegn Mamo, CEO of Wild Coffee Ethiopia, told Capital that his company has been in this line of business for the last about two years, with the license being renewed annually.
As Gezahegn explains, he provided a solid convincing angle for the central bank to allow him to sale his product locally in foreign currency. He also allowed the regulatory body to handle all the necessary cross checks so that no exploitation is done.
“Initially they were reluctant but I convinced them that Ethiopia is a diplomatic and conference hub in the continent to which several foreigners residing in the country need to have a taste of the premium coffee as long as they pay in foreign currency in close regulation of the central bank,” he recalled how he convinced NBE, adding, “In addition to sourcing foreign currency locally we have been exporting our coffee.”
Gezahegn also backed the latest move of ECTA citing that it is a move in the right direction.
The only thing they have to make sure is that the quality of the coffee and roasting facility maintains the required standard.
“Those who live in Ethiopia or come to visit or converge for a conference may buy the high quality coffee which is an opportune window to promote our coffee to the global coffee lovers without paying penny for advertisement,” said Gezahegn whilst supporting the proposed directive.
According to the draft directive, foreign visitors and travelers, embassies, international conference participants, and individuals who shall come up with legal foreign currency shall buy Ethiopian export coffee locally in foreign currency.
These buyers will have an option of using credit cards or electronics payment instrument to purchase the commodity.
However, according to the draft directive, if the national bank controls and approves the transactions, then a cash sale will be permitted.
With regards to the package labeling, the type of coffee, brand, trade mark, producing country, and date should be mentioned, in addition to marketing it as an export commodity on the package.
Exporters who get the nod to sell the product in foreign currency locally are expected to issue a receipt that mentions the place of sale, volume and value of the product.
Four star and above hotels, resorts and cafés, international airports, national parks, Unity Park, Friendship Park, Entoto Park are the centers where the value added export coffee product are to be sold.
The directive added that international convention centers, AU Headquarters and ECA are the facilities that Ethiopian value added coffee exporters can trade their products.
As per the draft directive, exporters who will be allowed to sale their commodity in foreign currency must fulfill different requirements including standards that allow keeping the quality of the commodity.
Traders are also expected to sale their commodity with minimum and above range of weekly price tags, while they have to report to the national bank for their daily transaction on a weekly basis.
So far the directive proposed that from the total export volume of value added coffee exporters shall sale the ten percent locally but as per the performance it presented to NBE, the coffee authority will look into revising the percentage.
NBE beefs up capacity to shoulder growing financial responsibilities
As the financial industry continues to become broad in terms of operation, the National Bank of Ethiopia (NBE) discloses that it is taking diligent steps in enhancing its capacity to shoulder its new responsibilities.
The central bank over the course of the past four years has undertaken massive reforms to align the financial industry with the Home Grown Economic Reform (HGER) and the ten year economic plan.
In this process, the regulatory body has amended a lot of directives or issued new laws besides the amendment of proclamation through parliament. Similarly, some crucial proclamations have been tabled to parliament for revision.
In its new pathway to improving services, the bank has also paid keen attention on refining its service and has beefed up its capacity to regulate the financial industry prudently.
As massive reforms continue to rejuvenate the sector, the responsibility of the central bank continues to expand making the bank to enhance its capability in all relevant spheres.
Yinager Dessie, Governor of NBE, said that one of the targets to attain success in the budget year was building the capacity of the regulatory body.
He said that there are several engagements in the bank as in any office.
“Capacity building and better services are priorities that we are working on, in the budget year, in addition to other planned activities,” Yinager said whilst delivering NBE’s quarterly report to the standing committee in parliament.
Besides rolling out cautionary measures to safeguard the country’s economy, the central bank has regular operations like supervision of financial entities such as microfinance institutions and insurers, currency administrations, and ensuring financial inclusion.
In connection to introducing reforms including the major moves like the establishment of the capital market, which NBE conducted the inception work, the regulator has also been engaged on massive capacity building to handle the upcoming possible challenges linked to the opening up of the financial sector.
To some extent international organizations and countries have also provided their support on skill development and financial support besides hiring prominent experts as advisors.
The government on its aim to improve the financial sector and telecom business, it has set sail to open up the market which was once highly protected from foreign investors and private companies including individuals from the diaspora.
With regards to the opening up of the telecom business, parliament recently approved a proclamation that would allow foreign fintechs to invest on the sector.
Directly or indirectly the central bank is said to have a stake on the upcoming alternative financial source, that is, the capital market.
The draft Banking Business Proclamation amendment that would allow the opening up of the financial sector for foreign actors has also been tabled to parliament.
The National Payment System, which allows foreign operators to be involved in the financial sector through digital schemes like mobile money, Payment Instrument Issuers, Payment System Operators are some of the major moves that would make the regulatory body engagements much broader since it includes more stakeholders including foreign operators.
Foreign Currency Intermediary directive that allow banks to facilitate credits from foreign sources for local borrowers is also the other new directive introduced in the reform period.
Open market operations and standard facilities that are a money market to the central bank or between financial institutions were also introduced in this period.
NBE has also been assigned additional responsibility in looking after private and public employees’ pension funds. The role of the two pension funds are expected to expand their operation in terms of generating more value for the benefit of pensioners.
The opening of the exchange rate which is said to be determined by the market is also expected to come to fruition in the near future.
