Agenda | Jun 25,2022
A severe financial stranglehold has been imposed on the banking industry, undermining businesses due to a loan cap policy imposed by the central bank to control inflation. While reducing inflation to 28pc by the end of 2023, the monetary tightening has cast a long shadow over the fledgling third-generation (3G) banks that have sprung up in recent years. These finance institutions are now being stifled under the weight of a one-size-fits-all regulatory cap, severely limiting their lending abilities.
The credit scene shows a banking sector that has expanded its loan portfolios — up 24.3pc to 1.8 trillion Br — with significant lending to manufacturing, domestic trade, services, and consumer banking. However, the distribution of credit across sectors has been overshadowed by the overarching constraints imposed on total loan growth, which remains capped at an annual 14pc irrespective of a bank's size or market reach. The uniform cap penalised newer banks that have faced severe restrictions on their operational scale and investment in growth, as evidenced by a shortfall in branch expansion and constrained staff recruitment. Executives blame the policy’s lack of flexibility to account for financial institutions' diversity and varying capacities to contribute to the economy.
The repercussions extend beyond the banks themselves to the broader economy, affecting investor confidence and the capital market, where share prices have been observed to falter. The directive requiring banks to increase their paid-up capital, while well-intentioned, further strains these financial entities, compelling some to consider mergers or face potential failure. There is a growing call among financial experts and bank executives for a more nuanced approach to loan growth regulation that considers the unique circumstances of newer banks and their strategic importance to economic diversification and growth. As the central bank continues its study on the impacts of the loan cap, the hope is for adjustments that will allow these financial institutions to thrive.
You can read the full story here
PUBLISHED ON
Apr 13,2024 [ VOL
25 , NO
1250]
Agenda | Jun 25,2022
Commentaries | Sep 10,2021
Viewpoints | Apr 22,2022
Fortune News | Mar 07,2020
Viewpoints | Feb 08,2020
Fortune News | Mar 18,2023
Sunday with Eden | Mar 07,2020
Fortune News | Sep 14,2020
Editorial | Feb 10,2024
Dec 22 , 2024 . By TIZITA SHEWAFERAW
Charged with transforming colossal state-owned enterprises into modern and competitiv...
Aug 18 , 2024 . By AKSAH ITALO
Although predictable Yonas Zerihun's job in the ride-hailing service is not immune to...
Jul 28 , 2024 . By TIZITA SHEWAFERAW
Unhabitual, perhaps too many, Samuel Gebreyohannes, 38, used to occasionally enjoy a couple of beers at breakfast. However, he recently swit...
Jul 13 , 2024 . By AKSAH ITALO
Investors who rely on tractors, trucks, and field vehicles for commuting, transporting commodities, and f...
May 31 , 2025
It is seldom flattering to be bracketed with North Korea and Myanmar. Ironically, Eth...
May 24 , 2025
Public hospitals have fallen eerily quiet lately. Corridors once crowded with patient...
May 17 , 2025
Ethiopia pours more than three billion Birr a year into academic research, yet too mu...
May 10 , 2025
Federal legislators recently summoned Shiferaw Teklemariam (PhD), head of the Disaste...
Loading your updates...