Sunday, June 16, 2024

NBE’s new quota stifles fresh banks


By our staff reporter

Despite some new banks airing out concerns to the financial industry regulatory body, National Bank of Ethiopia (NBE), the central bank has sent fresh loan discernment quotas for each and every bank as per the newly adopted cap imposed just a few weeks ago.

As sources in the financial industry inform Capital, the central bank has sent every bank’s quota and has further requested them to submit their execution plan.

In the monetary policy statement that was issued on August 11, the NBE board decided that for the current fiscal year which ends in June, 2024 will see the credit growth being limited to 14 percent. As per NBE’s intentions, all commercial banks will be instructed to limit the growth of their loan books so as to be consistent with this aggregate credit ceiling.

According to the information sourced from banks, NBE has sent their quotas as per the fresh loan disbursement performance that banks registered in the 2022/23 fiscal year that ended on June 30.

Sources said that the regulatory body separately calculated every banks loan disbursement for the current fiscal year as per the maximum growth rate on the consideration of last year’s allocation.

“NBE had asked banks for their disbursement schedule,” sources said.

However, banks particularly those that are new to the sector have raised concerns over the move.

According to the newbie banks, the group of big banks would not be affected by the new arrangement since their allocation was very huge in the past year.

“Some big banks had disbursed about 100 billion birr in a single year, while the new comers that have limited resources are facing a serious challenge. If the regulatory body decides to treat them as long established financial firms it will cause a pinch,” a bank president told Capital.

He added that the big banks will have a space to disburse over 15 billion birr under NBE’s latest decision while new banks will not have a space to facilitate few hundred million birr as a fresh loan if the central bank continues on its stand, “It will be damaging for our business.”

Bankers are now expressing their hope that NBE may take its time to relook its decision.

“Some of us are focused on the general public who are excluded from the financial industry or businesses that were not receiving ample attention on credit provision,” one of the bank presidents said.

As per the initial statement, the central bank stated that the 14 percent cap will continue until the end of the first half of the fiscal year, while experts said that it may continue until the end of the year.

The major aim of put a cap on fresh disbursement is to contain the growing inflation and place it under 20 percent by the end of the fiscal year from the current about 30 percent.

Beside credit cap, the NBE board also changed the interest rate at the NBE’s emergency lending facility that banks utilize when they face liquidity problems from 16 percent to 18 percent.

Moreover, the board has passed a decision to reduce the direct advance that the central government takes from NBE.

“An understand is also to be reached with the Ministry of Finance to make use of this facility, only as a last resort if sufficient Treasury Bills and Treasury Bonds cannot be raised in the market,” the central bank underscored.

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