Featured Product

    IMF Publishes Report on the 2018 Article IV Consultation with Ethiopia

    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 Articles
    News

    APRA Updates Lists of Validation and Derivation Rules in December 2019

    APRA updated the lists of the Direct to APRA (D2A) validation and derivation rules for authorized deposit-taking institutions, insurers, and superannuation entities.

    December 13, 2019 WebPage Regulatory News
    News

    APRA Finalizes Prudential Standard for Credit Risk Management of Banks

    APRA updated the prudential standard on credit risk management requirements (APS 220) for authorized deposit-taking institutions, post a public consultation.

    December 12, 2019 WebPage Regulatory News
    News

    EIOPA Consults on Guidelines on ICT Security and Governance

    EIOPA issued a consultation on guidelines on the Information and Communication Technology (ICT) security and governance by insurers.

    December 12, 2019 WebPage Regulatory News
    News

    BCBS Consults on Design of Prudential Treatment for Crypto-Assets

    BCBS published a discussion paper on the design of prudential treatment for crypto-asset exposures of banks.

    December 12, 2019 WebPage Regulatory News
    News

    NCUA Approves Delay of Risk-Based Capital Rules Until January 2022

    The NCUA Board held its eleventh open meeting of 2019 and approved a final rule to delay the effective date of the risk-based capital rules for credit unions to January 01, 2022.

    December 12, 2019 WebPage Regulatory News
    News

    APRA Issues Operational Risk Rules, Consults on Reporting Requirements

    APRA published an updated prudential standard APS 115 that sets out operational risk requirements for authorized deposit-taking institutions in Australia.

    December 11, 2019 WebPage Regulatory News
    News

    ESMA Updates Q&A on European Benchmarks Regulation in December 2019

    ESMA updated the question and answers (Q&A) document on the European Benchmarks Regulation.

    December 11, 2019 WebPage Regulatory News
    News

    APRA Decides to Keep Countercyclical Capital Buffer for Banks at 0%

    APRA announced its decision to keep the countercyclical capital buffer (CCyB) for authorized deposit-taking institutions on hold at zero percent.

    December 11, 2019 WebPage Regulatory News
    News

    ESMA on Draft Amendments to Indices and Recognized Exchanges Under CRR

    ESMA issued the final report on draft amendments to the Implementing Regulation (EU) 2016/1646, which specifies the main indices and recognized exchanges, under the Capital Requirements Regulation (CRR), that are relevant to credit institutions and investment firms subject to prudential requirements and trading venues.

    December 11, 2019 WebPage Regulatory News
    News

    FED Extends Consultation Period for Capital Requirements for Insurers

    FED is extending comment period for the proposed rule establishing risk-based capital requirements for depository institution holding companies that are significantly engaged in insurance activities.

    December 10, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 4316