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The root cause of the problems is the concentration of deposits and credit in the hands of a few clients. At the end of June 2024, less than 0.4 per cent of depositors accounted for 58.5 per cent of all bank deposits, according to the NBE.
Ethiopia’s Central Bank’s latest Financial Stability Report forecasts increased liquidity risks for commercial banks in the short and medium terms. Trouble with meeting weekly liquidity and real-time gross settlement (RTGS) payment requirements, as well as asset and liability mismatches and funding gaps for short-term maturity brackets, persist, according to the National Bank of Ethiopia (NBE).
The root cause of the problems is the concentration of deposits and credit in the hands of a few clients. At the end of June 2024, less than 0.4 per cent of depositors accounted for 58.5 per cent of all bank deposits, according to the NBE. However, most of these deposits belonged to state-owned enterprises (SOEs), and cash accounted for only a small share of banks’ liquid assets.
The top 10 borrowers held 14.7 per cent of the industry’s total loans and advances at the end of June 2024. It is significantly lower than the 23.5 per cent figure from a year earlier. However, excluding SOEs and regional administration borrowing, concentration ratios are much lower, with the top 10 private borrowers making up 3.5 per cent of bank loans and advances, according to the NBE.
Large borrowers, those with credit exposure of above 10 million birr, constituted only 0.5 per cent of the total, but they held almost three-quarters (74.8 per cent) of all loans. This statistic has grown compared to the year before, and a significant number of loans are held by borrowers from urban areas, reads the report.
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The NBE’s best-case scenario involves NPLs remaining stable at 3.9 per cent but notes that is dependent on economic growth, improved international and domestic conditions, and the absence of drought and conflict. At worst, the ratio will climb up as high as 30 per cent, according to the report.
