BY HIZKEL HAILU
Ethiopia’s banking industry is superficially supporting Ethiopia’s economy. However, the country is encountered with different natural and human made snags. And of course, this sector has been growing and developing significantly by all dimensions. According to documents from the National Bank of Ethiopia (NBE), currently, there are 30 Banks in Ethiopia. While the one is Ethiopian Development Bank, the rest 29 are Commercial banks (one public and 28 private).
Additionally, there are 40 microfinance institutions, 18 insurance companies, one re-insurance company, six capital goods finance (lease companies) and eight payment instrument issuers /system operators/ in Ethiopia. Accordingly, these financial institutions are playing significant role for the national economic growth.
On top of that, Yinager Desie (PhD), governor of the National Bank of Ethiopia revealed that the share of banks was high for the recorded economic growth in the last fiscal year. According to him, the country’s banks played a significant role in encouraging growth of the country’s economy amid complex problems in the last financial year.
Despite the economy of the world including Ethiopia’s was severely tested due to different challenges like the COVID-19 pandemic, security problems, drought and the war between Russia and Ukraine, the Governor avowed that Ethiopia has registered positive economic performance.
While reporting Banks’ 2021/22 fiscal year annual performance, Yinager further noted that it was an admirable and prideful result that Ethiopia’s economy has shown encouraging growth although it was a year that the economy of some countries was going downhill. According to him, the banking sector’s reform activity in the past four years has saved the financing sector from failures.
Noting that agriculture, investment and service sectors have played the lion’s share in the recorded economic growth, he said that the role of banks in providing financial services for the successfulness of these and other development sectors was very high.
The Governor further pointed out that it was able to earn more than 4.2 billion USD from export trade alone through increasing the export products in the fiscal year coupled with the tireless efforts of the Prime Minister and everyone to overcome the shortage of foreign exchange. Growth has also been recorded in terms of remittance services and foreign direct investment, he added.
“Cognizant of the fact that the time demands to digitalize the banking services, Ethiopian banks are seemingly working in helping the country to achieve its goal in creating digital Ethiopia by 2025. Accordingly, currently, there are more than 43 million mobile banking service customers of whom 23 million are registered in telebirr”.
Mentioning that the electronic and digital market and financing activity were dormant for the past decades, the Governor pointed out that during the past four years massive changes have been appeared in digitalizing the financial sector. He also illustrated that 1.16 trillion Birr transaction was made and 24.4 billion Birr was transferred through mobile banking by the last fiscal year.
Moreover, 197.5 billion Birr cash was withdrew using ATMs, adding, he said the number of mobile banking users and ATMs has reached 16.3 million and 6,902 respectively. Noting that there was a problem of theft, fraud and smuggling in the sector, Yinager Desie said that the government has been taking various measures to address the problem, starting with changing the currency, and in this regard, he urged all banks to take due care.
The Governor also said the banks should make tireless efforts to make the country’s economic growth more sustainable. And he stated that the government will work with determination to make digital services availability to the 67 million mobile users in the country.
While presenting his paper entitled with “Growth and Development Performance of the Banking System”, NBE’s Bank Supervision Director, Frezer Ayalew, on his part said that the high level supervision and follow up over the financial institution has played significant role for the economic growth.
For him, the total assets of banks have increased by 92 percent during the last 4 years. As a result, the total assets of banks increased from 1.3 trillion in June 2019 to 2.5 trillion Birr in June 2022. At the same time, banks’ loans, including bonds has been increased by 73 percent during the mentioned period and reached 1.65 trillion Birr.
According to his paper, the Ethiopian Development Bank has been able to reduce the amount of non-performing loans over the years. In the recently ended Ethiopian fiscal year, it was able to decrease from the 40 percent to 24.28 percent due to major changes and management activities taken in the past four years. This improvement has been also seen for the last four consecutive years.
He also illustrated that, the rate of non-performing loans in the June 2020 was 34 percent and the rate was down to below 30 percent in June 2021.
Banking sector related reform activities have brought significant role or good performance of the banking sector. Amendment of banking business legal framework, capital market proclamation, issuance of movable collateral Registry system and issuance of deposit insurance regulation are amongst the others, he added.
Solomon Damtew, NBE’s Payment and Settlement Director for his part said that the number of payment agents was increased by 800 percent in just the last one year. In the 2021/22 fiscal year, the number of agents has been reached to 156,876, and in 2020/21, this number was around 15,000. It has been stated that the launch of Tele-Birr has a noteworthy role for the significant growth. Therefore, most of the agents are Tele-Birr agents, he announced.
As to him, establishment of the National Digital Payments Strategy (NDPS) has also brought pivotal role in registering successful result in building digital economy. The NDPS for 2021–2024 is a central component of that journey. In this sense, this strategy is a roadmap through which the NBE will transform the payment ecosystem and help build a cash-lite and more financially inclusive economy.
Congratulating commercial banks for their attractive performance, particularly Bank of Oromia for its award received from The European Society for Quality Research (ESQR), the Governor pledged them to make themselves ready to compute with international banks.
Teferi Mekonen, Chief Executive Officer of Oromia Bank for his part said such international recognition exemplifies the Bank’s transformational efforts and commitment to providing excellent customer service. As to him, his bank will also go hand in hand with the theme of the Central Bank for Nation’s economic development.
He further revealed that the award has a big role in the respect of the country, adding, he said that the Bank of Oromia has become an exemplary for many banks of this country. The reform activity made by the government during the past four years helped them to bring this success, he noted.
“Allowing transformation of Micro Finance Institutions (MFIs) into banks, broadening definition of Finance Institution (FI) and including Non-Bank players in the ecosystem, raising minimum paid up capital into Birr 5 billion as well as drafting /issuance of various directives are among the reform activities that helps us to move forward,” Teferi said.
According to the NBE’s Governor, strengthening advance preparation for opening banking sector, enhancing supervisory and industry capacity, functionality of deposit insurance fund, enhancing the role of banks in ECX coupled with expanding access to finance mainly credit to underserved population and pro-growth oriented sectors are the way forward that they have planned to do so far in the forthcoming periods.
Apart from the aforementioned activities they have a plan to exhaustively working on enhancing consumer protection, enhancing digitalization as well as strengthening IT supervision and IT security, he mentioned.
Although there has been great success in the field of digital payments and finance in the past four years, building a cashless economy will require a lot of hard work and dedication from the national bank and the sector’s actors for the coming years, he stated.
The Ethiopian Herald 14 August 2022
