General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
December 04, 2018

IMF published its staff report under the 2018 Article IV Consultation with Federal Democratic Republic of Ethiopia. Directors noted that financial sector reforms would increase the effectiveness of monetary policy and support development goals. These reforms should include the development of a market for government securities, with market determined interest rates. Until this market develops, National Bank of Ethiopia (NBE) bills should be used solely to manage liquidity in the banking system and delinked from funding of the Development Bank of Ethiopia which needs to complete a comprehensive financial assessment. Gradual opening of the financial sector to foreign investors could improve services and transfer technology and know-how.

The staff report notes that commercial banks appear to be mostly well-capitalized and liquid, with nonperforming loans (NPLs) well below the statutory 5% ceiling. However, the state-owned Commercial Bank of Ethiopia (CBE) is exposed to state-owned enterprises, whose income may be adversely affected by the phasing out of implicit subsidies, restrictions to competition, and other distortions. To map early remedial actions, NBE has instructed CBE to undertake a comprehensive asset quality review. Moreover, asset quality in the state-owned Development Bank of Ethiopia, which is a non-deposit-taking institution and hence not part of the commercial banking system, continues to deteriorate. The Development Bank of Ethiopia's NPL ratio stood at 39% in 2017–18, posing substantial quasi-fiscal risks—as outstanding NBE credit to the DBE represents 2.4% of GDP. The authorities have undertaken a financial assessment of the Development Bank of Ethiopia and are considering remedial strategies.

NBE bills need to be reformed and delinked from Development Bank of Ethiopia funding. These five-year NBE bills must now be purchased by private commercial banks in an amount equivalent to 27% of gross credit extended, irrespective of the maturity of the loans—about 75% of these funds are then used to fund the Development Bank of Ethiopia. NBE bills now represent 30% to 40% of private commercial banks’ loans outstanding; although the interest rate on them was recently increased, it remains negative in real terms. The bills have been successful in reducing banks’ excess liquidity, but their design should be improved to better serve this purpose until a T-bills market develops—by reducing their maturity and possibly basing the purchase obligation on excess reserves. Further funding of the Development Bank of Ethiopia by NBE should be discontinued, at least until the ongoing comprehensive assessment of its financial situation is completed and resolution measures are implemented.


Related Link: Staff Report

Keywords: Middle East and Africa, Ethiopia, Banking, Securities, NPL, Article IV, IMF

Related Insights

BCBS Finds Liquidity Risk Management Principles Remain Fit for Purpose

BCBS completed a review of its 2008 Principles for sound liquidity risk management and supervision. The review confirmed that the principles remain fit for purpose.

January 17, 2019 WebPage Regulatory News

MAS Guidelines on Risk Mitigation Requirements for OTC Derivatives

MAS published guidelines on risk mitigation requirements for non-centrally cleared over-the-counter (OTC) derivatives contracts.

January 17, 2019 WebPage Regulatory News

HKMA Urges Local Banks to Start Working on FRTB Implementation

HKMA announced that it plans to issue a consultation paper on the new market risk standard in the second quarter of 2019.

January 17, 2019 WebPage Regulatory News

EBA Finalizes Guidelines for High-Risk Exposures Under CRR

EBA published the final guidelines on the specification of types of exposures to be associated with high risk under the Capital Requirements Regulation (CRR). The guidelines are intended to facilitate a higher degree of comparability in terms of the current practices in identifying high-risk exposures.

January 17, 2019 WebPage Regulatory News

BoE Publishes the Schedule for Statistical Reporting for 2019

BoE published the updated schedule for statistical reporting for 2019. The reporting institutions use the online statistical data application (OSCA) to submit statistical data to BoE.

January 16, 2019 WebPage Regulatory News

PRA Delays Final Direction on Reporting of Private Securitizations

PRA and FCA have delayed the issuance of final direction, including the final template, on reporting of private securitizations, from January 15, 2019 to the end of January 2019.

January 15, 2019 WebPage Regulatory News

SNB Updates Forms on Supervisory Reporting for Banks

SNB published Version 1.7 of reporting forms (AUR_U, AUR_UEA, AUR_UES, AURH_U, AUR_K, AUR_KEA, and AURH_K) and the related documentation for supervisory reporting on an individual and consolidated basis.

January 15, 2019 WebPage Regulatory News

BCBS Finalizes Market Risk Capital Framework and Work Program for 2019

BCBS published the final framework for market risk capital requirements and its work program for 2019. Also published was an explanatory note to provide a non-technical description of the overall market risk framework, the changes that have been incorporated into in this version of the framework and impact of the framework.

January 14, 2019 WebPage Regulatory News

EBA Single Rulebook Q&A: First Update for January 2019

EBA published answers to 13 questions under the Single Rulebook question and answer (Q&A) updates for this week.

January 11, 2019 WebPage Regulatory News

PRA Proposes to Amend Supervisory Statement on Credit Risk Mitigation

PRA published the consultation paper CP1/19 that is proposing changes to the supervisory statement (SS17/13) on credit risk mitigation.

January 10, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2473