EBA recommends to limit cash withdrawals


The Ethiopian Banker’s Association (EBA) provides policy recommendations to the National Bank of Ethiopia (NBE) that includes accessing NBE bills and limit cash withdrawals from banks as a way out from the current liquidity crunch.
The financial industry has been in liquidity shortage in the past couple of months. Meanwhile the government through the central bank took several measures to tackle the problem but to no avail.
NBE cut the 27 percent NBE bills implemented since 2011 on private banks to buy 27 percentage bonds from their every fresh loans. Besides that to improve banks liquidity the central bank has been auctioned 14.5 billion birr for banks to ease their cash shortage.
According the latest move by EBA, it has provided short and long term policy recommendations to improve the matter.
The short term recommendation elaborates the liquidity access from national bank shall be liquidating banks NBE bills. “Liquidating their NBE bills, which is equivalent to the amount needed by the respective bank to solve the current liquidity problem; or availing credit with flexible tenure and lower interest rate,” the policy recommendation of the association that Capital looked stated.
It added that the members suggested that the NBE may take appropriate other monetary measures to regulate the adverse effects of any fund it would avail to the banks as recommended above and states “but restoring public confidence shall be given priority at any cost.”
In the long term policy recommendation the association that represents all banks including the two public financial enterprises stated that supporting CBE, the state owned financial giant, to improve its liquidity position is a must, because the measures that could be taken to reduce liquidity stress would affect the industry as a whole.
CBE’s deposit mobilization for the first six months of 2019/20 financial year stood at 24.6 billion birr which is 71 percent of its target. The performance in the first half of the past financial year, 2018/19, was 29.8 billion birr, which is 5.2 billion birr higher than this year first half performance.
The recommendation for the long term solution also added that the central bank to put cap for cash withdrawal from banks.
“Introduce directive that limit cash withdrawal from banks, because high cash is observed outside banks,” the recommendation reads.
“Support banks to modernize their chase management and payment system,” it added.
Currently sector actors claimed that several individuals prefer to save huge amount of money in their safes than using the formal banking system.
In different occasion it has been recommended by the sector actors that the government should impose maximum rate that individuals can have in their possession at a time.
Recently Abie Sano President of EBA and CBE, said that even though the government accrued finance that it collected in terms of tax and other means, it reserved to disburse it.
“Currently the government is reserved to release finance and due to that the financial sector is affected,” Abie explained.
He said that if the government disburses the money the financial sector would be beneficiary. He said that he believed the problem is short term.
One of the bank presidents, who preferred anonymity, told Capital that the policy recommendation is developed by the initiation of the association itself.
“Although NBE is the regulatory body responsible to supervise the sector, we also have stake to take such kind of initiative since we are also working for the country and administer public finance that we have to keep the public confidence,” the president added.
The scope of the policy recommendations includes looking the cause of the problem and solution that the government should or consider to follow.
“We expect positive response from the government,” the president expressed his hope.
The association submitted the policy recommendation for national bank this week.