The National Bank of Ethiopia criticized the fact that the main function of the country’s banks is the provision of loans, that is, that all banks focus only on certain sectors and entities, and urged them to make corrections.
The Governor of the National Bank of Ethiopia, Ynager Dese (Dr.) said this at a recent meeting with the presidents of all the country’s banks. Although the discussion forum was prepared to commemorate the effective activities of the country’s banks for the past four years and to jointly evaluate the activity of the sector, it was also recommended by the National Bank that controls the sector that the deficiencies of the banking industry that should be corrected should be raised and corrected.
“Even though all banks are efficient, it does not mean that they do not have any defects,” said the Governor of the National Bank of Ethiopia, Ynagger Dese (Dr.), especially the main purpose of the country’s banks and the source of their profitability.
“It is not appropriate that loans are being given only to certain parties as much as the amount of bank loans has increased,” said the governor of the National Bank, Dr. Yi Nagar (Dr.) explained to the presidents of all the banks who attended the forum. According to the Governor of the National Bank, the credit services offered by all the country’s banks are focused on big investors and are limited to urban areas.
“It can be considered that the loans given are limited to big investors and urban areas,” said Yanager (Dr.), urging banks to correct this trend and support economically meaningful sectors by expanding the composition of their borrowers.
“Banks should provide loans to rural areas, especially to low-income, middle-income people and small enterprises,” he said. He added, “This is a key issue.”
At the same time, increasing access to finance is still a long way to go, so he advised banks to pay attention in this regard. Another issue that the governor of the National Bank has noted is the problem associated with embezzlement and fraud in banks.
“Individuals in banks as well as some people outside of banks are seeing the conditions and trends of fraud, theft and smuggling in financial institutions, in order to prevent this, the managements of all banks are expected to strengthen the work being done in their respective institutions,” he said.
The Director of Banking Supervision of the National Bank of Ethiopia, Fraser Ayaleu, said that the country’s banks should pay attention and work on the issues that the country’s banks should focus on.
According to Mr. Fraser, since the banking sector can be opened to foreign companies, the country’s banks must make strategic preparations for this. He added that with this in mind, the National Bank of Ethiopia should work extensively on the super vision and (monitoring and control) capacity as well as the capacity building of the banking sector.
Despite the above, the fact that the country’s banks have continued to be profitable and efficient compared to other sectors in the past four years was strongly raised in the forum.
In the 2014 financial year, the 16 private banks and the two government banks made a profit of more than 70 billion birr before taxes and other deductions, of which the 16 private banks recorded a profit of more than 40 billion birr, while the Commercial Bank of Ethiopia and the Development Bank of Ethiopia recorded 27.5 billion birr and 3.4 billion birr respectively from taxes and other deductions. Deductibles were able to profit before.
According to the Governor of the National Bank of Ethiopia, Yingare Dese, the reforms made in the sector in the last four years have greatly increased the banking industry. He said that this growth was recorded at a time when national and international challenges were prominent, and if there were no overlapping challenges, the sector would have achieved even more results. He pointed out that the banking industry continues to grow and contribute significantly to the growth of the national economy despite the challenges both external and internal. This continuous growth was achieved due to the unremitting efforts of the banks and they are said to deserve thanks.
Fraser Ayaleu, Director of Banking Supervision of the National Bank of Ethiopia, who explained the activities of the country’s banks and especially the growth seen in the last four years, has shown that banks have shown significant growth in all aspects. For this reason, they explained that the number of banks which were 18 four years ago in the 2011 financial year has reached 30 at the end of this year. The number of branches of these banks was 5,564 in 2011 and this number reached 8,944 at the end of 2014. This shows a 61 percent growth in four years.
Another indicator of the growth of the banking industry, especially the change in the past four years, is the increase in access to banking. According to Fraser, in the 2011 financial year, one branch served 16,957 people, and this number dropped to 11,516 at the end of the 2014 financial year. It is said that this is seen as a big change.
Another statistical data presented as an indication that the country’s banks have seen growth unlike other sectors of the economy is the growth of the banks’ assets. The increase in the amount of loans, deposits, capital and the number of depositors is another indication of the growth of the sector.
In the last four years, the banks have shown a growth of 73 to 108 percent, especially in the last four years. Mr. Fraser, who gave an explanation about these important parameters, said that the total assets of banks have grown by an average of 24.5 percent in the last four years and reached 2.5 trillion birr at the end of 2014. He also mentioned that this figure showed a 92 percent growth compared to the 1.3 trillion birr wealth of the 2011 fiscal year.
Mr. Fraser pointed out that the loan stock of these banks has grown by an average of 20 percent. He said that the loan stock of the banks which was 952.08 billion birr in the 2011 financial year reached 1.64 trillion birr at the end of 2014. In terms of deposits, it has grown by an average of 25 percent in the last four years and has now reached 1.73 trillion birr, said Mr. Fraser, who said that this amount of deposits has grown by 93 percent in four years compared to 899.8 billion birr in the 2011 financial year.
Other indicators mentioned as the country’s banks have achieved particularly high growth are the amount of capital and the number of customers who have opened savings accounts. The director also pointed out that in the financial year 2011, the capital of all banks was 98.9 billion birr. This amount of capital has grown by an average of 27 percent every year and reached 199.1 billion birr at the end of 2014. The statistics show that the banks have doubled their capital in the last four years. Mr. Fraser said that the amount of capital they reached in 2014 compared to the 2011 financial year showed a growth of 101 percent.
The number of customers opening deposit accounts at banks has also doubled in four years. Taking into account customers who have two or more accounts, the number of depositors, which was 40.04 million in 2011, reached 83.3 million in 2014, recording an average growth of 28 percent every year in four years. The director pointed out that this is a 108 percent growth.
Mr. Fraser reminded that the annual profit rate is the most telling indicator that the country’s banks have really grown and been effective, and all banks continue to be profitable. What makes Ethiopian banks different is that not a single bank is closed in Ethiopia.
In the last four years, the bank’s net profit or the profit after tax has been presented as an example. In the financial year 2011, the profit after tax of all banks is 22.48 billion birr. In 2012, they earned 21.86 billion birr, and in 2013, they mentioned that they were able to increase their profit after tax to 33.54 billion. In 2014, they managed to reach 49.9 billion birr before tax. Mr. Fraser also pointed out that this profit growth is a 122 percent increase compared to 2011.
It was also mentioned that there are many indications that the country’s financial institutions continue to be healthy in various parameters. A sign of their soundness is their low level of bad loans. Despite a lot of pressure on the economy in the last four years, the bad loan ratio of banks is 3.87 percent. It is said that the amount of bad loans is lower than the amount that should not exceed five percent, which shows their soundness.
Fraser, who stated that the commercial banks are working in a healthy manner in other parameters, said that the Ethiopian Development Bank, which has had a large number of bad loans, has significantly reduced its bad loans, and said that Ethiopian banks are continuing to be healthy and efficient. Currently, the Ethiopian Development Bank has been able to bring down the level of bad loans from 47% to 15%, and it has been reported that they will earn a profit of 3.4 billion birr in the 2014 financial year.
Unlike other times, on the platform where the results achieved by banks were praised, the question “How was this result obtained?” was also answered. Ato Frazer has contributed greatly to the development of the sector through the many changes and reforms that the National Bank of Ethiopia has prepared. In the past four years, the work of reviewing the banking legal and legal form work that governs the entire banking system, the issuance of decrees and directives that allow borrowing with movable property as collateral, the issuance of the capital law,
Allowing interest-free banking services, allowing Ethiopians to invest in the banking sector, allowing capable macro financers to grow into banks, and the biggest reform is the financial sector. It is said that the decision of banks to increase their capital and many other reforms contributed to the growth of the sector. The bank presidents also indicated that the change of silver note has contributed to the development of the sector by consulting the National Bank on some guidelines and other measures.