Central Bank's Tough Love Targets Loan Risks, Cronyism

Jun 15 , 2024


[ssba-buttons]

Regulators at the National Bank of Ethiopia (NBE) have rolled out a series of new directives targeting the banking industry, including the preemptive introduction of an "unlikely to pay" category to identify loans at risk of turning into non-performing loans (NPLs). They have also capped the total exposure to a single borrower at 25pc of a bank's total capital, with a further limitation of 15pc for exposure to related parties. A directive issued last week  mandates that all NPLs must be placed under non-accrual status, regardless of the collateral provided. If a borrower has multiple loans and any one loan becomes non-performing, all loans to that client must be classified as non-performing if they constitute 20pc or more of the bank's total exposure to that client. "By enforcing stricter controls, the NBE aims to prevent the extraction of private benefits at the expense of banks’ stability and integrity," said a statement from the regulators. According to the statement, these directives are part of a broader effort by the NBE to enhance asset classification and provisioning, set requirements for individuals with significant influence in banks, and promote robust corporate governance. The central bank's statement claims that these measures reflect a commitment to safeguarding the financial system and promoting prudent banking operations. The NBE has imposed stringent criteria for the qualifications and experience of board members and senior management, including mandates for the inclusion of independent directors and the promotion of gender diversity on boards. These reforms appear to confirm practices endorsed by the Basel Committee on Banking Supervision and the International Financial Reporting Standards (IFRS), showing the importance of risk management, transparency, and accountability in banking operations.


Radar

New Directive Hikes Service Fees for Foreign Investors in Free Trade Zones

The Ethiopian Investment Board has issued a new directive revising the service fees from foreign investors payable in dollars to the Ethiopian Investment Commission (EIC), introducing updated rates for both the One Stop Shop and designated Free Trade Zones. The revised directive came into effect this April following its publication on the websites of the Ministry of Justice and the EIC. Issued pursuant to Article 23 of the Special Economic Zone Proclamation, the directive outlines charges for...


Radar

City Tables 350B Br Budget Plan for Upcoming Fiscal Year

The City Administration has approved a resolution to submit a proposed budget of 350 billion Br for the 2025/26 fiscal year to the City Council for deliberation. According to the Administration's statement on its official social media page, the draft budget is designed with a central focus on poverty reduction, encompassing targeted subsidies for sustainable development, investment in large-scale job-creating projects, and enhanced service delivery to address the growing demands of the reside...


Radar

Ethiopia, UN Launch Joint Plan to Drive Development Through 2030

The Ethiopian government and the United Nations (UN) have signed a five-year development plan outlining national priorities from 2025 to 2030. Signed on June 20 at the Ministry of Finance, the United Nations Sustainable Development Cooperation Framework (UNSDCF) with implications that it aligns with Ethiopia's reform goals and the Sustainable Development Agenda. The plan is backed by a projected 6.5 billion dollars, though only 1.5 billion dollars is currently secured. It focuses on closing t...