Cash shortage stifles banks


Financial firms are informally mobilizing capital to stabilize their liquidity crunch.
People thought that banks’ liquidity would improve after the National Bank of Ethiopia (NBE) stopped requiring them to buy 27 percent of every loan disbursement.
However, this has not been the case as sources report that banks including the public, Commercial Bank of Ethiopia (CBE), are experiencing a liquidity crunch. These sources report that the situation has pressured financial institutions (including the state-owned bank) to informally approach their corporate clients to get cash.
A head of one financial firm confirmed the lack of liquid assets to Capital. “In the recent past there has been a high demand for cash and banks have actively worked to meet the needs of their customers but this has led to a cash flow problem,” the bank president said.
In addition, this time of year is when corporations settle their taxes and as a result take money out of banks to pay the government.
“Billions of birr in taxes flow to the government around this time, as a result banks face a liquidity crunch,” a banker said.
Experts in the financial industry think that even though NBE started the Treasury bill at an attractive interest rate that follows the market economy with the goal of attracting financial firms like banks and insurance companies, sources said that banks will not get involved in this right now.
As of this Wednesday December 4, NBE has rebooted the weekly T Bill market with an attractive interest rate with the goal of attracting the attention of banks that had participated once in a while in the weekly auction because the rate was very minimal.
“Even though it has launched the market based modern T Bill, I doubt banks participate in this week’s auction because of their liquidity shortage, in the future when they have a high amount of liquidity the T Bill will be a good option for them,” another bank president told Capital.
Currently bankers are busy mobilizing sufficient liquidity instead of participating in the bill market (primary market), which is considered the way to commence the secondary market. “Currently we (every bank) are focusing on convincing corporate customers to deposit cash in our banks, but when we have enough liquidity we shall go on the Central Bank bill,” he said.
On the way to modernizing and transforming the financial sector the government is undertaking several changes including lifting the NBE Bill and introducing attractive T-bill s, which financial firms applaud.