Wegagen Bank, one of the largest commercial banks, lowered its lending interest rate across four priority sectors by 0.5 to three percentage points effective in January.

The lending interest rate adjustment was made following the National Bank of Ethiopia (NBE) move of lifting the 27pc mandatory bond purchase on private banks for every loan and advance they disburse. Wegagen lowered the rate for the manufacturing, hotel and tourism, agriculture and export sectors.

Wegagen lowered the lending interest rate to encourage investment and to maintain the quality of loans, according to Berihun Desta, vice president in charge of credit and international banking at Wegagen, which had outstanding loans and advances of 16.5 billion Br during the last fiscal year, a growth of 9.3pc from the previous year.

"Depending on the importance of the sectors in the economy, the bank will do further reductions," said Berihun. “The rates will be reviewed periodically.”

Following the adjustment in the interest rate, the management of the Bank expects a reduction of profit by 100 million Br to 150 million Br, according to Berihun.

Following the removal of the NBE Bill requirement, Awash Bank and Bank of Abyssinia lowered their lending interest rates as well. Awash reduced its lending interest rate by 0.5 to 4.5 percentage points, while Bank of Abyssinia has lowered the rate by up to six percentage points.

The mandatory bond private banks were required to buy was funneled to the Development Bank of Ethiopia (DBE), the state policy bank. The funds were transferred to DBE in an effort to ensure that nationally mobilised resources are used to finance priority sectors identified by the government, including manufacturing and agriculture.

However, as part of the ongoing economic reform agenda, at the end of 2019 the government repealed the mandatory bond purchase requirement, which threatened the liquidity status of the private banks.