The National Bank of Ethiopia (NBE), which is very concerned with the depletion of the liquidity reserve of commercial banks, has tightened its grip on the industry in an attempt to resolve the ongoing liquidity crisis.

The regulatory bank has required all of the commercial banks to submit a complete list of their outstanding loan portfolios that include the name of the borrower, the value of the loan and the maturity period. The NBE also compelled the financial institutions to file their cash flow statements until June 30 of this year along with the list of the loans they have approved but not disbursed.

Beginning last week, the regulatory bank sent a letter attached with a form to the banks requesting to submit complete data on their cash flows and loan portfolios. The banks were also given until the end of last week as a deadline to file the data.

Before dispatching the letter, central bank governor Yinager Dessie (PhD) held a meeting with the board chairpersons of all of the commercial banks to discuss the concerning liquidity crises in the industry.

During the meeting, the governor, who was very serious and straight forward, told the board of directors that the central bank would take stringent actions and conduct regular follow-ups to rectify the problem.

Yinager directed the banks to employ a system that registers uncleared cheques. He also warned them to clear cheques in a timely manner. If they fail to do so, the central bank will clear the cheques of clients but continue to hold the banks accountable for the uncleared cheques.

Currently, cheques worth close to six billion Birr are pending between banks, while most of the banks mention system failure as a reason for not processing the cheques while being cash-strapped. Some banks, including the Commercial Bank of Ethiopia (CBE), limited the maximum money a depositor can withdraw to 5,000 Br in Meqelle and Dessie.

The governor also warned the banks, including CBE, to follow the law, according to the attendees of the meeting. The governor also alerted the guardians of the banks that the regulator would take measures against those that fail to operate in line with the procedure.

A former regulator who commented under the condition of anonymity, says that the issue has multidimensional problems ranging from policy issues to loose regulation from the central bank coupled with weak credit management at the banks.

“This has never been seen in the past 20 years,” said the expert, "and it is severe and risky."

Most of the banks were disbursing long-term loans while mobilising short-term resources, according to the former regulator, adding that the 27pc mandatory NBE Bill purchase has significantly drained the banks over the past couple of years.

In the past year, the growth of deposit mobilisation and loan disbursement was not balanced. Borrowing has grown by 40pc, while resource mobilisation was growing by only 20pc. Since launching the NBE bills in 2011, the central bank sold 26.2 billion Br worth of them to private banks.