The National Bank of Ethiopia (NBE) released its second financial report last week, noting rising risks in the banking sector stemming from local and external factors. The report assessed the banking sector as stable and noted that despite the concentration of credit, risks are lower than anticipated due to the diversification of loans to the private sector. It noted that the sector would not face systemic threats even under severe credit shocks. The banking industry has continued to dominate the country’s financial sector. As of June 2024, banks accounted for 96pc of the financial industry's assets. Liquidity risks were estimated to be low, with the sector showing resilience to short-term liquidity shocks despite some vulnerabilities. Operational risks, however, were identified as a growing concern. The banking sector faces growing risks such as bank fraud, third-party risks, and insider threats in the short- and medium-term. The report praised the industry's performance amid ongoing reforms. The NBE predicts a broadly positive outlook for the current fiscal year, accompanied by fiscal, monetary, and exchange regime reforms. The report also notes the strong performance and resilience in microfinance, capital goods leasing, and insurance sectors.

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