The deposit mobilization of the country almost reaches the trillion birr mark; thanks to the contribution of cash withdrawal limit directive of the National Bank of Ethiopia (NBE) that shows promising results.
In its third quarter report of the 2019/20 fiscal year, NBE indicated that the total deposit mobilization reached at 989.2 billion birr with over 18 percent increment compared with a year ago similar period.
“Total deposit liabilities of the banking system reached 989.2 billion birr by the end of third quarter of 2019/20, indicating a 18.1 percent annual growth due to branch expansion, improved access to finance, growing saving culture of the public and increasing per capita income,” the report explained.
Eyob Tekalign, State Minister of Finance and Board Member of NBE, told Capital that in nominal terms it is significant. “It shows the way of expanding the GDP, but it does not mean our saving potential is at the maximum limit,” he says adding “our saving capacity is not yet tapped.”
“Cash withdrawal limit directive issued in May shows us the number of unbanked society is very big so the current saving will grow more,” Eyob added.
He added that the NBE directive is a good policy decision to achieve such kind of success besides expanding the digital economy.
Since the country introduced the cash withdrawal limit the number of bank users including public offices increased, according to the State Minister.
The NBE’s cash withdrawal limit directive states that the withdrawal amount for individuals is 200,000 birr per day and one million birr per month. The amount for companies is 300,000 birr per day and 2.5 million birr per month.
In the second quarter of the fiscal year that is from October to December 2019 the total deposit mobilization was 959 billion birr, while the third quarter increased by 3.2 percent compared with the second quarter.
From the total 989.2 billion birr deposit mobilization evaluated from January to March 2020 the saving deposit took the top position and followed by demand deposit.
The demand deposits, which accounted for 35.4 percent of the total deposits, reached 350.2 billion birr showing 24 percent annual increase.
Saving deposits also went up by 19 percent to 550.6 billion birr and accounted for 55.7 percent of the total deposits.
The share of state owned banks in total deposits outstanding was 59 percent while that of private banks was 41 percent.
Currently 18 banks operate in the country including two state owned banks. These banks opened 226 new branches during the review period, raising the total number of bank branches to 6,362 of which 70 percent were that of private banks, according to NBE report.
One branch on average serves 15,848.6 people. About 34.1 percent of the total bank branches are located in Addis Ababa.
Cash deposits reach one trillion birr
CAMEL to be used to rate MFIs transition to banks
CAMEL rating will determine the transition of microfinance institutions (MFIs) to banks under the new directive of the National Bank of Ethiopia (NBE). State owned enterprises will also hold shares besides 70 percent maximum amount allowed to own by regional governments or city administrations.
Early this week NBE announced that MFIs owned by regional or city administrations will be relicensed as banks.
Yinager Dessie, Governor of NBE, said that the decision to relicensed microfinance institutions as a bank answered the demand that have been raised by the financial institutions for a long time.
According to the directive signed by the Governor, CAMEL is an international rating system used by regulatory banking authorities to rate financial institutions, according to the six factors represented by its acronym. The CAMEL acronym stands for “Capital adequacy, Asset quality, Management, Earnings, and Liquidity.”
The CAMEL rating ranges from 5 to 1 as the 5th rate considered as the best rating and one is the worst.
Article 4 sub article 4.4 of ‘requirements for relicensing a microfinance institution’ states that safety and soundness of a microfinance institution to be relicensed as a bank shall be evidenced by a composite CAMEL rating of at least ‘3’ in the on-site examination report produced within a year preceding the date of application of a microfinance institution to be relicensed as a bank.
The same directive sub article 4.3 states that a regional government shall not hold more than 70 percent shares when the microfinance institution is relicensed as a bank.
During his briefing Yinager also said that NBE decided the share limit for regional governments to give a chance to include the society to be part of the MFIs and included the public from all corner.
However the directive has given a chance for public enterprises to access shares at the transition process as a bank.
Yinager also underlined that meanwhile they are upgraded to bank they are supposed to continue to provide microfinance services.
Article 4 sub article 4.5 said that a microfinance institution to be relicensed as a bank shall state in its mission statement, internal bylaws and business model about the provision of microfinance services as one of its core services and put in place the required resources and system towards that effect.
Sub article 4.6 added that a microfinance institution to be relicensed as a bank shall organize and structure a function that will handle the microfinance as one of its major lines of business.
MFIs mainly regional and city administrations owned have been asking the regulatory body for the transition to regular financial firm.
NBE issued the directive only for publicly owned microfinance institutions, while private microfinance institutions are stated that they have to follow the regular bank formation process to be changed as bank.
Currently there are 38 microfinance institutions operating in the country, while the majority are privately owned.
According to the third quarter report of NBE for the 2019/20 fiscal year MFIs have mobilized 43.3 billion birr in saving deposit by end of the third quarter which was 12.6 percent higher than last year same period. Their total outstanding credit also increased by 17.6 percent and reached 60.8 billion birr.
Similarly, in the stated period their total asset grew by 17.1 percent to reach 89.6 billion birr.
In the stated quarter that is from January to March 2020 the top five MFIs (Amhara, Dedebit, Oromia, Omo and Addis Credit and Saving Institutions) accounted for 82.9 percent of the total capital, 90.3 percent of the total deposit, 85.7 percent of total credit and 86.8 percent of total asset of micro finance institutions.
NBE also disclosed that micro insurances will be formed under a new directive that it issues. The directive targets to improve the insurance coverage, which is the lowest compared with peer Sub Saharan countries.
In related development according to a new directive issued by NBE individuals or companies will not be allowed to hold more than 1.5 million birr in cash at hand.
On the media briefing the Governor added that banks are now allowed to access foreign loans to provide for their customers. The new directive aims to improve the way to access foreign currency and minimize the shortage that becomes a serious bottleneck particularly for industries that demand hard currency to import raw material.
WHY GOLD?
Wisdom is the outcome of seasoned reflections acquired through wide experience and extensive learning. Proverbs are distilled phrases intended to capture these subtle reflections. These immortal adages are not said in vain and one dismisses them at her own peril. Today, some modern investors are willing to negate a reality that has prevailed for eons. Arguably, the most successful investor of the last half a century has said a lot about gold, many of them intended to diminish its luster. ‘Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in a year or two years than they are now. And if they become more afraid you make money, if they become less afraid you lose money, but the gold itself doesn’t produce anything’! Warren Buffet.
To some extent, we concur with the famous investor, but we also think there are technical issues that need to be looked at more thoroughly. To start with, gold is a rare metal, hence dear, not superficially dear, but naturally dear! Moreover, there are areas in the hi-tech industries (known & unknown) where gold remains critical. The current price of gold (in the world market) indicates a rising real demand, not only from mere investors, but also amongst the large majority of the nation states of the world system. Gold doesn’t produce anything, but so are many of the unicorn companies of late modernity. In this regard, the states are even worse when it comes to destroying capital. To be sure, the wealth that is touted to be made today are, by and large, ephemeral, as they are based on the flooding of economies/markets with phony money, obtained via debt, debt and debt! Globally, states, corporations/companies, household, etc. are all in debts up to their eyeballs, so to speak. Despite the continuous brainwashing of the global establishment, debts remain cumbersome obligations. Therefore debt is not wealth! Here is what the famous banker of the late 19th and early 20t had to say about real money/wealth. ‘Gold and silver are money everything else is credit.’ J. P. Morgan. This is the crux of the problem!
Without undue analysis about the merit and demerit of commodity backed currencies, one can at least accept the fact that when systems are confronting massive dislocations, people tend to trust these rare commodities or precious metals more than anything else, including their state’s currencies. Without a doubt, the modern world system is in the process of bifurcation, threatening to dismantle the prevailing global economic arrangement! It seems fear is what is fuelling the current price appreciation of gold and silver. That is why even seasoned investors like Buffett are having second thought about what he used to call the ‘old relic’. He is selling his interests in banks like Goldman Sachs and is buying companies that are digging gold. Obviously it is fear that is occupying his productive and investment oriented mind. On the other hand, speculators are being rewarded hand over fist, in the stock market, thanks to the generous printing of money. The collective parasites, i.e., the ruling elites and their moronic minions, are enjoying the existing phony money regime; but time is running out on them. Even if hyperinflation doesn’t rear its ugly head, hyper chaos emanating from the desperation of the sheeple might do the trick, so to speak. See the articles next column and on page 29.
What is the purpose of gold or silver or any other intrinsically value-laden stuff? In times of crisis, these rare commodities serve as stores of value. The current significant price increase of precious metals is mainly due to the depreciation of currencies, i.e., the increasing loss of purchasing power. Paper currencies cannot hold their values, as they are being printed non-stop. Ultimately, the value of paper money will return back to its intrinsic value, which is zero, to use Voltaire’s expression. For example, the value of the US dollar has gone down by over 90% since Dec 23, 1913, the year the FED was sneakily and formally established, just before Congress’ Christmas recess! At the end of the day, buying gold, in effect, guarantees that currency manipulation (by the power that be) cannot go on indefinitely. It is clear that the tendency of late modernity is to make life easy to the undeserving parasites at the top, while 80% of the global sheeple is forced to live in suspense. The job of the 20% of the sheeple employed by the elites is to make sure the 80% behave in accordance with the masters’ strategic objectives. To this end, the employment of ‘useful idiots’ to diligently avail bread and circus to the masses is paramount. After all, a sleeping sheeple is much preferred than the restless one! Here is an example of a palpable trepidation.
‘We are in a crisis, the worst crisis in my lifetime since the Second World War. I would describe it as a revolutionary moment when the range of possibilities is much greater than in normal times. What is inconceivable in normal times becomes not only possible but actually happens. People are disoriented and scared. They do things that are bad for them and for the world.’ George Soros. Georgy; take solace from the wisdom of the ancient elders: “Gold is the money of kings; silver is the money of gentlemen; barter is the money of peasants, but debt is the money of slaves.” Norm Franz. Good Day!
COVID-19 crisis hasn’t lowered AA house prices – Yet
Investing in prime residential Real Estate has generally been a hot topic in Addis Ababa. After all, there are several people that have made a killing doing it. The turmoil surrounding the COVID-19 virus seems to have slowed down this momentum, buyers and sellers are currently assessing the consequences of this event. For now, the industry is facing an acute working capital crisis which is essential to restart the business and keep it moving. As for housing prices they have not dropped significantly in the way some may have expected; clearly the future of the market remains uncertain.
First, a look at how the Real Estate industry evolves…
The Real Estate cycles when left to work through the markets typically transition through the following supply and demand phases. In the expansion stage supply peaks and prices somewhat max out to then stabilize gradually; at this stage a transition takes place in the market where buyers chase premium properties and push price levels even higher. In the recession cycle, when typically there is income disruption, people can’t earn enough to provide for their families, and satisfy their debt obligations. This is the phase where the Real Estate cycle begins to contract.
An event like the COVID-19 crisis would dramatically reduce most home transactions; and although some prices have been lowered here and there, there is no dramatic move in prices. But what one can see, and what has not been seen before, is that this time sellers are more inclined to negotiate.
How do Ethiopian house buyers respond to an event like this? Would the market become risky for investors over the next two to three years?
The way investors and consumers engage in dealing with the COVID-19 crisis will determine how quickly the country will recover from the economic downturn to reach 2018-2019 levels very quickly. Anecdotal evidence suggests, high value house price levels remain high right now, while demand has already started to collapse. It would appear that home sellers are reluctant to decrease pricing as aggressively as potential buyers are exiting the market. Eventually, the lack of real demand will prompt price levels to contract to attract interested buyers. As we’ve seen in many places, when prices start to decline – a vicious cycle begins where potential buyers wait out the bottom offers because they know the dynamics of the markets have changed in their favor.
When large numbers of people or businesses suddenly lose their sources of income, this creates a significant disruption in the supply/demand side of the Real Estate market. How extensive is this disruption in AA? We don’t know. What we know, is it’s hard for prices to move when there aren’t as many housing transactions to make prices move in aggregate. It’s also hard for prices to move as long as there is no pressure on Real Estate firms from banks pulling out capital or asking repayment of loans. Real Estate companies will continue trying to seek peak price levels even when sales activity continues to decrease. How can that be??
Simple supply and demand theory suggests when prices are high and buyers begin to lose faith in future price increases – the cycle shifts from rising price levels to falling price levels as buyers begin to wait out the better deals and wait for the bottom in the markets to setup.
At this stage, given the virus crisis, the erratic nature of ethnic politics in Addis Ababa – in addition to a potentially explosive national election, plus the recent banking regulatory requirements and the reluctance of foreigners to move until there’s a vaccine – the housing market is on pause – buyers and sellers have left the market, transactions have dropped in response, and prices aren’t moving.
So what’s next?
From both theory and experience, we know that the more you let the market determine your price the better off the economy will be. But can the market fix the housing sector? Not really. At a minimum you need government to develop policies encouraging developers to build housing that the modern economy demands. The Government needs to avail land for developers to build affordable housing and vibrant neighborhoods. It also needs to provide subsidy and incentives for affordable housing. In short, free-market solutions although desirable must take into consideration the complex interrelationship of people’s culture, building costs, wages and the economy in general.
Finally, one sensible recommendation for those with money on hand waiting to capitalize for when house prices come down: Don’t despair there is a slight advantage in your favor! It could be twelve to eighteen months before you see the best opportunities.
