Saturday, June 15, 2024

Banks’ liquidity dries out


Withdrawal fiasco leaves customers afraid of depositing cash
Regulation leniency and lack of stringent measures from the central bank, National Bank of Ethiopia (NBE), is pinned as one of the primary challenges which have jeopardized cash withdrawals from financial institutions in recent weeks.
As experts now opine, it is of paramount importance that the financial regulator need impose a directive or properly apply the current rules on financial institutions regarding cash withdrawal regulations. As the depressing trend on limiting the cash withdrawal continues, customers have now resorted to keeping money in their own hands in fear of the limits, and as experts warn, this could heavily impact the government policy to expand the saving to GDP ratio.
As financial professionals who keenly follow the matter inform Capital, the majority of banks have now laid down different instruments that hinder depositors from accessing the amount of money they need.
According to the claim, except the state owned financial enterprise, Commercial Bank of Ethiopia (CBE), and some major firms, most of the banks are doing their best to keep the depositors money from being withdrawn by their customers.
The claims further cite that some of the banks have imposed unnecessary competition between their branches as to who can get more volume of cash on hand, “This has resulted in branches not properly handling their customers need and have caused refusal of requested amount of withdrawals as per customer demand.”
As sector experts indicate, only a fraction of banks are in line with the law of NBE with regards to withdrawal limits; that is CBE and very few big banks and those who are new but highly competitive in the banking sector.
“A major portion of the private banks are struggling to keep the money that they hold rolling. Despite some banks adamancy on their liquidity insufficiency, the reality though is far from the case,” sources at one of the biggest banks said.
Experts in the sector also pointed out that settlements between banks has become an uphill task which has made some of the banks to wait for long to access their finance from other parallel banks.
They added that the current situation has forced depositors to hold their cash due to lack of confidence in their banks’ access capability, “This is certainly against the NBE law imposed two years back on the maximum amount of money to be hold on hand.”
According to the NBE law issued in October 2020, the maximum daily cash withdrawal limit for individuals was set at 50,000 birr and 70, 000 birr for a juridical person or an organization.
“The way how some banks are following this recent trend is very dangerous for the national economy since their practice is eroding depositors’ confidence,” sector experts expressed their concern.
“My bank’s ATM machine is mostly hosting other banks cards because their machines are empty or not loaded. This is challenging for us since we are not timely refunded from the other banks,” one of the bank presidents explained.
“The bad thing about liquidity problems is that it is transferable from one to the other. If someone was unable to access their cash on one bank or its machine, they would come to the other bank for access. Even if my bank is healthy, with regards to liquidity, through time it will be burdened by other banks,” he elaborated.
According to sources that closely follow the financial industry, about five private banks are healthily operating as per the normal cash withdrawal guide, in addition to CBE. However, most of the private banks have been noted not to follow suit.
“If you request for 10,000 birr today, they may allow you to get half of it or less than that, which is disappointing for depositors who may demand that amount of money for their urgent payments,” an expert explained.
As one of the, liquid sound, bank presidents underlines, the challenge has arose from excessive disbursement of money as loans through banks. The huge amount of credit allocation is observed on the price of vehicles and land that has suddenly skyrocketed in the past about one year.
“Banks are competing on unnecessary and artificial deposit competition as opposed to prudent operation,” he says, adding, “NBE ought to have strict control of financial firms in connection to the loan-deposit ratio.”
“Even though NBE has a law for the loan deposit ratio to be at 85 percent, the banks are yet to properly enforce that to a tee,” some bankers told Capital.
They said that some of the banks provide over 100 percent of their deposit mobilizations, which means they have disbursed their working capital too.
“This has come to pass as a result of lack of a controlling scheme or severe action from the regulatory body,” a banker explained.
“Some of the banks are also taking loans from NBE through individual banks’ lending facility, which was designed to help commercial banks to meet unexpected liquidity needs, and provide as a credit for their customers,” experts said, adding, “But the regulatory body is yet to be seen taking serious measures on those banks who abuse the scheme”.
As bankers acknowledged, it is crystal clear why the fear of the depositor has come about.
Experts argued that the problem has escalated because the central bank has not been taking the required legal action, “It has rules and regulations that can manage misacts but we are not seeing that.”
Capital’s effort to get further comments on the issue from NBE was unfruitful.

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