IMF Recommends CBE’s Asset Quality Review

February 1 , 2020

The latest staff report of the International Monetary Fund (IMF) recommends the asset quality review of the Commercial Bank of Ethiopia (CBE) due to tight liquidity. CBE’s liquidity ratio dropped last year due to a persistent asset-liability mismatch, according to the report. It also stated that the Bank has been prioritising the financing of long-term projects undertaken by state-owned enterprises by investing in bonds and extending loans, drawing on its deposit base. Credit to the state-owned enterprises has expanded in line with significant growth in state investment in recent years, which tightened liquidity conditions of the Bank and exacerbated the maturity mismatch, according to the IMF. Out of the total credit portfolio of the Bank, the energy sector has the highest exposure, accounting for about 40pc of the Bank's total asset portfolio. The report also indicated that sluggish repayment of state-owned enterprise's loans exacerbated the CBE’s liquidity position. "CBE has a large exposure to foreign exchange risk, as the Bank plays a central role in foreign exchange transactions,'' reads the report. The report has also downgraded Ethiopia's prospect for economic growth in the current year by one percentage point, from the 7.2pc it had projected earlier, attributing the possible growth decline to macroeconomic policy launched to address the structural imbalance in the economy.