Fortune News | Nov 30,2019
July 18 , 2020
By FASIKA TADESSE ( FORTUNE STAFF WRITER )
Leaders of the Association of Ethiopian Bank Directors are pushing for the idea of jointly financing the ongoing construction of Ethiopia's signature mega dam project.
They have petitioned the National Bank of Ethiopia (NBE) to allow private banks to use one percent of their total deposits to purchase a bond for the construction of the Great Ethiopian Renaissance Dam (GERD).
Filed on July 17, 2020, the Association's resolution proposes 4.47 billion Br of the depositors guarantee collected from all of the 16 private banks as of June 30, 2020. The purchase of the bond will have a maturity period of five years. The Association has also left the decision on interest rates of the bond to the central bank, which will also hold onto the bond.
Out of the deposits mobilised by the banks, the central bank keeps five percent of the value in security reserves as a depositor guarantee. And the NBE is the only body that has authorisation over the money that is held as security reserve. The rate was reduced to five percent two years ago from 10pc, which was also cut from 15pc a few years back.
The Association reached the decision after holding a meeting on July 16, 2020, at the central bank with the presence of representatives from 13 banks. Before tabling the issue for the bank representatives that include presidents and board members, the six-member board of directors of the Association chaired by Zafu EyesusWork discussed and agreed to table it to bankrepresentatives.
"Since the issue needs a directive amendment," said a source close to the case, "the Association wrote a formal letter that requests the central bank to make adjustments after considering the proposal."
At a country level, anything for the development of the Dam is much appreciated, and the idea is admirable, according to Asfaw Alemu, president of Dashen Bank.
"I'm sure everyone agrees on this matter," he said. "However, it's obvious it'll affect the liquidity position of banks."
Asfaw explains that the central bank considers this one percent as a liquid asset even though its a long-term investment or asset.
Hailemelekot Teklegiorgis, board chairperson of Addis International Bank, shares Asfaw's reservation.
When the central bank calculates the liquidity position of banks, this reserve requirement is taken as a liquid asset, according to Hailemelekot, who walked out of Thursday's meeting before it ended.
"But if we purchase a bond, it won't be taken as a liquid asset, which will be problematic," said Hailemelekot, who adds that he is confused why the latest request came onto the scene.
Ethiopia launched the construction of the five-billion-dollar hydroelectric Dam with a generating capacity of over 5,000MW almost a decade ago and has completed over 74pc of the construction since then. The country is now gearing itself up to start filling it with water followed by early power generation using two turbines.
Regardless, one of the riparian countries, Egypt, has continually reflected fears that the Dam will threaten water supplies, which feeds its agriculture and economy. The latest dam negotiations that were held with the negotiator role of the African Union has ended with no agreement.
So far, the country spent 99 billion Br on the Dam, and about 30 billion Br to 50 billion Br in additional funds is expected to be used to fully complete the project. The civil works, electromechanical and hydro steel structure of the Dam have, respectively, reached 88.5pc, 45pc and 35pc.
The Great Renaissance Dam Coordination Project Office has so far raised 13.7 billion Br from the public. During the just ended fiscal year, it collected 744.8 million Br, 29 million Br of which was raised through the 8100A short message system (SMS) platform. From March to June, the office collected 266 million Br, out of which the 87. 3 million Br was obtained in June only.
“There are also 1.1 million subscribers to the 8100A platform,” says Hailu Abraham, media and communications director with the Office of National Council for the Coordination of Public Participation.
A retired former bank president also believes that this is not the right decision since the reserve requirement is a line of defence for the banks since all the banks do not have depositors insurance.
The bond is a long-term investment, they should have questioned what happens if something bad happens to one bank in the period of the retirement of the bond, it's going to be a disaster, according to the retired president.
"One thing to be reminded of is that the money in a safe isn't equal for all banks," he said. "This action defies the very purpose of the reserve requirement."
This reserve requirement is a self-created policy for the banks, according to Alemseged Assefa, former vice president of the National Bank of Ethiopia (NBE).
"But this needs the central bank's judgement," he said. "They need to assess the current situation in banks and make a decision."
In fact, this is a win-win situation for both parties as the banks can benefit the interest rate on the bond that has been sitting idle, and the government can be benefited by the project as well, according to Alemseged.
PUBLISHED ON Jul 18,2020 [ VOL 21 , NO 1055]
Fortune News | Nov 30,2019
Fortune News | May 08,2021
Fortune News | Feb 20,2021
Fortune News | Jul 03,2021
Radar | May 08,2021
Featured | Aug 10,2019
Fortune News | Mar 09,2019
Fortune News | Feb 23,2019
Covid-19 | May 23,2020
Fortune News | Apr 24,2021
August 28 , 2021 . By HAWI DADHI
The streets of Addis Abeba are as varied as they are many, although too many of them have yet to be named. From the narrow alleyways of the...
August 7 , 2021
There are a few without an opinion on Ethiopia’s federal structure, which is arranged along lingo-cultu...
July 24 , 2021
There was an alarming increase in the price of Teffin August 2017. It suddenly skyrocketed from 2,000 Br...
June 26 , 2021 . By HAWI DADHI and SAMUEL BOGALE
This past Monday was the second time Belay Zerihun, a second-time voter, has had to stand in a long queue...
September this year provides a unique opportunity in the quest to transform our food...
Leaders of the National Election Board are in a charm offensive mood, of a sort. Last week, they organised a rare tour for members of the me...
When the country’s most senior diplomats and envoys return back to their posts after two-week debriefings, they leave behind a point or tw...
September 18 , 2021
It could be customary to wish well for the holiday seasons. If only the New Year cele...
September 10 , 2021
What dominates a customary display of festivities during Ethiopia`s New Year weeks is...
September 4 , 2021
Ethiopia has become a familiar topic at the United Nation’s Security Council, a pow...
August 28 , 2021
The Central Statistics Agency (CSA) finally has an easily navigatable and pleasant lo...
PM Abiy Ahmed (PhD) at a Gala Dinner Called for the Awarding of the Félix Houphouët-Boigny Peace Prize
May 6 , 2019
If asked to name one of the most important phrases to humankind, I would probably say...
Or see contact page