Slow bond purchase dips fresh loan disbursement

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(Photo: Anteneh Aklilu)

The slowdown in new bonds purchase contributes for the drop of total fresh loan disbursement in the third quarter of the 2020/21 fiscal year. The currency out side bank has continued on its growth after its significant retraction in the first quarter of the fiscal year, while the private banks capital has expanded further.
The National Bank of Ethiopia (NBE) quarterly bulletin that reviews the economic activity of the third quarter of the past fiscal year indicated that the banking sector disbursed about 68.2 billion birr in fresh loans (including CBE bonds), signifying a 31.2 percent annual decrease because of lower new bonds purchase during the review quarter.
Mostly the CBE bonds is purchased by public enterprises that are in reforms due to high indebting because of heavy loan in the past but in real operation in poor performance. Due to that the government through Ministry of Finance designed a strategy to revamp their activity in different forms including sacking some of their debts. It has also preferred to focus on finalizing the commenced projects rather than demanding some more funds.
According to NBE quarter bulletin, of the total new loans disbursed, the share of state owned banks was 32.1 percent and that of private banks stood at 67.9 percent, which was similar in the first quarter but reduced to 59 percent on the second quarter of the same fiscal year.
International trade was the largest beneficiary accounting for 21.9 percent from the total fresh loans, and followed by domestic trade (15 percent), agriculture (13.2 percent), industry (11.6 percent), housing and construction that was unusually at a top in the second quarter (9.4 percent), transport and communication (6.1 percent) and mines, power and water resource (4.4 percent).
In the same period, the banking system collected loans (including corporate bonds) close to 43.8 billion birr, depicting an 8.2 percent fall compared with last year, “of the total loan collection, 70.4 percent was by private banks and 29.6 percent by state owned banks.”
Meanwhile, total outstanding credit of the banking system (including corporate bond) rose by about 21.4 percent to reach 1.2 trillion birr.
About 99.7 percent of the private banks and 20 percent of state banks’ loans went to finance the private sector.
At the end of third quarter of 2020/21, broad money supply (M2) stood at 1.3 trillion birr, showing a 27.7 percent annual growth attributing to 92.5 percent surge in domestic credit which offset 5.9 percent contraction in external asset (net). The increase in domestic credit was ascribed solely to 25.4 percent rise in credit to central government and 17.3 percent in credit to non-central government.
The M2 was 1.2 trillion birr in the second quarter of the fiscal year.
NBE indicated that component wise, quasi-money supply showed an annual and quarterly expansion of 33.2 percent and 6.7 percent, respectively. Narrow money supply grew 17.7 percent on annual basis and contributed 23.3 percent to broad money expansion while that of quasi money was 76.7 percent
The surge in quasi-money was attributed to bank branch network expansion and improvement in access to finance demonetization and cash withdrawal limit have also helped banks to mobilize more deposits.
On the stated period the currency outside banks has stood at 127.5 billion birr that increased by 17.7 percent compared with the preceding quarter and 16.6 percent from similar period of last year.
In the first quarter of the 2020/21 fiscal year that was the period for demonization and that the central banks introduce different directive to impose on cash on hand and maximum limit on cash withdrawal the currency outside of banks was 64.6 billion birr. It has now become taking its former position and even registered significant growth.
Reserve money amounted to 266.5 billion birr in the third quarter of 2020/21, exhibiting 19.6 percent year-onyear and 3.0 percent quarterly expansion. Similarly, excess reserve of commercial banks showed 21.1 percent annual growth while it contracted 22.1 percent on quarterly basis.
The total capital of the banking system amounted to 125.1 billion birr, of which state owned banks accounted for 46.4 percent and private banks 53.6 percent.
The share of Commercial Bank of Ethiopia (CBE), the biggest state owned bank, in total capital of the banking system was 41.7 percent.
The private banks total share in terms of capital has for the first time stood at a higher position as of the last quarter and expanded more in the third quarter. The NBE report indicated that the share of private banks has reached at 53.6 percent and the balance for stated owned banks. The share of the private financial sector capital is expected to expand more since there are many more on the pipeline to commence operation.
In the second quarter the banking sector capital was 120.8 billion birr and the share of state owned banks accounted for 48.1 percent while private banks took 51.9 percent share.
Total outstanding T-bills at the end of the quarter reached 68.9 billion birr, and total sold in the quarter only amounted 48.6 billion birr.
The deficit in the overall balance of payments narrowed to USD 285.9 million during the third quarter of 2020/21 compared to USD 426.4 million deficits a year ago. This was mainly attributed to narrowing of the merchandise trade deficit coupled with shift from a deficit to a surplus of net services from and an increase in surplus of net private transfers.
During the third quarter merchandise trade deficit narrowed to USD 2.7 billion from USD 2.9 billion last year due to lower import payments and higher merchandise export receipts.