Insurance companies are required to invest at least 40pc of their admitted assets in treasury bills (T-bill), according to a new circular issued by the National Bank of Ethiopia (NBE). Signed by Fikadu Digafie, vice governor and chief economist at the central bank, the letter was dispatched three weeks ago informing the insurers to invest the value in T-bills starting from November.

Three months ago, the central bank amended the Investment of Insurance Funds Directive, which required insurers to invest no less than 60pc of their admitted assets of the general insurance funds in treasury bills and bank deposits including checking, savings and time deposits. The directive allowed the insurers only to invest 10pc of their assets in buildings.

"We noticed that most of the companies were depositing the money into banks," Fikadu told Fortune. "We find it necessary to transfer the money into a treasury bill to support the monetary policy."

Last week, the central bank gave training to the staffs of insurance companies. Assefa Sumoro, a capital market development advisor at NBE, was in charge of the training.

Insurance executives, already discontented with the Investment of Insurance Funds Directive and claiming that it did not give them room to invest in areas with a good return, are unhappy with the new rule.

The directive does not seem to understand the nature of the insurance business, according to a senior executive at one of the insurance companies.

"The core insurance business doesn't have much profit," the senior executive told Fortune. "Thus, we make a profit from non-insurance businesses such as investments in shares, properties and time deposits."

The yield rate of treasury bills is far below the time and savings deposits, which often bear more than 10pc a year, according to the senior executive.

Fikadu says that the decision might affect the companies, but the impact is not significant.

"We're using it to balance the macroeconomic instability by financing the budget deficit and controlling inflationary pressure," said Fikadu, who argues that the 28-day and three-month T-bills have a yield rate of eight percent and 28pc, respectively.

Previously, the average weighted yield of the T-bills stood at 1.42pc, which is far lower than the minimum deposit interest rate in the market that stands at eight percent. However, the central bank reformed the T-Bill market, making it so that the market determines the yield rate. The move is aimed at attracting banks and insurance companies as well as individuals to participate in the primary market through auctions.

During the first quarter of this fiscal year, the central bank has sold 33.4 billion Br worth of T-bills. The budget deficit has been fully covered by the revenues generated from the sale of treasury bills, according to Yinager Dessie (PhD), governor of the central bank, who gave a briefing to the media a few weeks ago.