Private banks surpass public banks in capital


Construction and housing sector becomes top beneficiary

The public financial enterprises leave their dominance for the first time to the private banks in terms of capital. The fresh loan disbursement is boosted by the leading private financial institution.
As per the second quarter economic review of National Bank of Ethiopia (NBE), the construction and housing loan disbursement climbed at the top growing at a rate of 130 percent from its ordinary share of 10 percent from the total loan allocation.
The second quarter report of NBE shows that the giant public financial firms leave their dominance in terms of the supply of fresh loan supply and capital in the banking system.
Before the stated quarter of 2020/21, the public financial firms, which are two, their capital have been at the top by over half of the total amount.
However, in the second quarter of the current financial year the state banks capital share has dropped from half of the total capital in the banking industry. The 17 private banks collectively took the lion’s share for the first time in the history of financial industry which opened for competition in mid 1990s.
According to the NBE quarterly report that covers October, November and December 2020, the total capital of the banking system amounted to 120.8 billion birr, of which state owned banks accounted for 48.1 percent and private banks 51.9 percent.
For instance the capital share of public financial enterprises in the first quarter of the same fiscal year was 50.9 percent and 52.9 percent at second quarter of last financial year.
Meanwhile, the state giant Commercial Bank of Ethiopia (CBE) capital is still leading the sector, its share has declined significantly compared with its position in the preceding period.
In the second quarter of 2019/20 and first quarter of 2020/21 CBE’s capital share in the banking system has stood at 45.9 percent and 44.3 percent respectively that has now shrunk to 41.7 percent in the reported quarter.
From the total 120.8 billion birr capital in the banking system, which climbed by 8 billion birr compared with the preceding quarter, the share of public banks that includes Development Bank of Ethiopia is 58 billion birr, while the CBE share from the stated amount is 50.3 billion birr with small sum increment compared with the preceding quarter.
The capital share of the private banks in the other face which has stretched by fresh 7.1 billion birr compared with the first quarter that ended on September 30, 2020 and stood at 62.7 billion birr.
During the review quarter, 100.4 billion birr was disbursed in fresh loans, indicating a 51.5 percent annual increase. The amount that disbursed in the stated period is not only very high compared with the same period of last year but it is massively increased compared with several quarter in the near past including the preceding three months.
Similar to the preceding quarter, the private banks share has stood at the top unlike the experience of the past financial year and even before that.
According to the NBE quarterly review, of the total new loans disbursed, the share of state owned banks was 40.5 percent and that of private banks was 59.5 percent.
However, the fresh loan disbursement has registered a history in terms the category of beneficiary sector.
In this regard the construction and housing sector has become a top receiver of the fresh loan by beating the traditional sectors like domestic and international trade, and industry sector.
Most of the time the housing and construction sector takes about ten percent of fresh loan, while the sectors mentioned above competing each other to be atop but they were always the top threes.
For instance in the second quarter of the past financial year the international trade, domestic trade and industry set at the top respectively and followed by housing and construction sector. Similarly, in the first quarter of this year the domestic and international trade and industry were leading the access to fresh loan by 21.2 percent, 19.7 and 17 percentages. The share of the construction and housing business was 9.3 percent or 5.1 billion birr with fourth position in the first quarter.
But this time around the construction and house sector has written new history by becoming the major beneficiary in the second quarter that ended on December 31 for the access to fresh loan.
The NBE economic review indicated that the share of construction and housing was 23.4 percent or 23.5 billion birr. In terms of value it has increased by 460 percent that compared with the preceding quarter allocation. In the first quarter the construction and house sector received 5.1 billion birr.
For the reported second quarter the construction business is followed by domestic trade (17.5 billion birr or 17.4 percent), international trade (16.8 billion birr) and industry (15.1 billion birr) for access to fresh loan.
Almost all of the sectors have received huge amount of loan due to the spike of total fresh loan amount.
It was recalled that the second quarter was part of the demonization, which commenced mid September 2020 and stayed for three months. NBE had stated that huge amount of money had been coming to the banking system because of the demonization that was supported by different directives to keep the cash into banks. Due to that banks enabled to amass huge amount of resource that is reflected by fresh loan disbursement.
In the second quarter the broad money supply (M2 ) stood at 1.2 trillion birr showing a 23.9 percent growth over the corresponding quarter of last fiscal year owing to 114.9 percent growth of domestic credit offsetting the 8.9 percent contraction of external asset. The M2 was 1.1 billion birr in the first quarter of the same financial year.
Component wise, quasi-money supply exhibited 27.2 percent annual and 4.9 percent quarterly expansion while narrow money supply (M1) saw 17.7 percent growth on annual and 16.7 percent contraction in quarterly terms.
Year-on-year basis, M1 contributed 25.9 percent and quasi money 74.1 percent to M2 growth.
The growth in quasi-money supply was attributed bank branch expansion and improved service outreach, currency demonetization and cash withdrawal limit set by the National Bank of Ethiopia.
The quasi-money supply, which is mainly included saving deposits and time deposits has stood at 787 billion birr by 4.9 percent increments compared with the preceding quarter.
From the M1 that contributed 390.5 billion birr for the M2 the currency outside banks has back to the preceding period position rather than continuing on lower position of the past quarter.
In the first quarter, which was the period that NBE emplaced different directives like cash withdrawal limit and demonization, the amount of currency outside banks has been shrunken to 65 billion birr from 109 billion birr of the last quarter of 2019/20 financial year.
Meanwhile, the currency outside banks in the second quarter of 2020/21 has returned to 108 billion birr by increment of 67.5 percent from the first quarter and 9.8 percent of the same period of last year.
Average savings deposit rate stood at 8 percent and weighted average time deposit rate decreased by 0.27 percent while average lending rate was 14.25 percent year-on-year basis. Weighted average yield on T-bills has increased by 6.25 percentage point over last year same quarter. Yet, considering the 18.2 percent headline inflation in December 2020, real interest rates on deposit, lending and T-bill yields remained negative.