BY ABEBE WOLDEGIORGIS
Though the main objective of the banks is providing loan to customers, there are some inconsistencies observed in the sector. Almost all banks are serving very limited sectors and the practice must be corrected, the National Bank of Ethiopia announced.
The Governor of the National Bank of Ethiopia (NBE), Yinager Desie (PhD), while making discussion recently with all presidents of banks in Ethiopia told them that they must conduct their business in fair manner. On the occasion, the banks’ four years performance was evaluated. Weakness and strength of the banks were checked and constructive recommendations were forwarded.
“Though performance of all banks is commendable, there are still some limitations which must be redressed”. Yinager Said, particularly, there are some anomalies on their loan provision which is the source of their profit making.
He further said that, though the loan provided to the customers is increasing, the loan is supplied to the specific sector which is unfair. As to the Governor of National Bank, banks in providing loan focuses on rich men and urban centers. And they should correct such tendency and enhance the disbursement of loan to various segments of the society and to sectors which have impact on the economy.
As to Yinager, banks should stretch their services to the rural areas and provide loan to small and medium income groups of the society and small scale enterprises. And such venture plays pivotal role in poverty reduction.
Side by side with these, enhancing financial inclusion is vital. On the other hand, he remarked on malpractices rampant in the bank industries.
“There are some bank staffs and outside the sector engaged in money laundering, fraud and illegal trade therefore, deterring such practice and putting in to account the culprits is the banks responsibility” Yinager said.
Supervision Director of The National Bank of Ethiopia, Frezeer Ayalew on his part said that the government announced that it gave green light to the opening of the bank sector to the foreign investors. Hence, the local banks should prepare themselves for the inevitable competition with foreign banks. By considering such development, the national bank must enhance its supervision and follow up capacity.
Though weakness witnessed in the bank sector as mentioned above, their performance in the last four years is commendable and gaining a lot of profit can be taken as strength.
It is also announced that, in 2014 Ethiopian budget year, 16 private banks and two public banks could earn more than 70 billion Birr profit. The 16 private banks alone could make a profit more than 40 billion Birr. The two public banks suchas commercial bank of Ethiopia and the Development Bank of Ethiopia could profit 27.5 billion Birr and 3.4 billion Birr respectively before tax. According to the Governor of the National Bank of Ethiopia, the reform implemented in the last four years enabled the banking industry to score tremendous achievements. The achievement scored in the past is impressive because it was happened while the nation finds itself in political and economic turmoil. Had there not been such crises, the banks would have been achieved more than what has been registered. The sector is playing pivotal role in boosting the nation’s economy.
Supervision director of the National Bank, Frezeer Ayalew also explained the banks achievements in the last four years based on charts. He further indicated that in the year 2011 there were only 18 banks but by the end of 2011 EC the number was elevated to 30. The banks had 5564 branches all over Ethiopia in the year 2011 and by the year 2014 EC their number reached to 8944. This means that in the last four years the number of banks has grown by 61 %.
The other aspects which shows the banking industry’s growth is that the increment of the banks service to the lower segment of the society.
As to Freezer, in the year 2011 EC the ratio of bank service to the people was one branch office to 16957 people but by the year 2011 EC the ratio was declined to one branch to 11516 people. This can be said a great achievement.
The other parameter mentioned as the sign of the banks growth among others, the enhancement of the banks wealth amount, the amount of loaned money, deposited money, capital and the increasing of customers who deposit their money. When the banks are evaluated in these regard, they showed from 73 to 108 % growth.
Frezer added that based on the mentioned criterion in the last four years, the banks wealth amount showed annual growth on average 24.5 % and reached to 2.5 trillion birr by the end of the year 2014. The figure as compared to the year 2011 EC which was 1.3 trillion wealth amounts showed 92 % growth.
The banks’ cumulative loaned money showed 20% annual growth and by the year 2011 the banks cumulative loaned money was 952.08 billion and the amount reached by the year 2014 EC to 1.64 Trillion Birr. In the last four years the deposited money grew by 25% annually and currently it reached to 1.73 trillion Birr and the amount as compared to 2011 budget year which is 899.8 billion Birr was grown by grew by 93 %, Frezeer noted.
The other achievements which can be described are the capital amount and the number of money depositors. As to the director, by the year 2011 the Banks capital amount was 98.9 Billion Birr. The capital amount showed annual growth by 27 % and by the year 2014 it reached to 199.1 billion Birr. According to the figure, in the last four years the banks could raise their capital amount by one fold.
As compared to the year 2011, the capital in the year 2014 was raised by 101 %. The number of depositors also increased in the last four years by one fold. Putting in to account the number of bank books by customers with two and more than that in the year 2011 the number of depositors was 40.04 million and within four years annually on average grew by 28 % and by the year 2014 the number rose to 83.3 million and grew by 108%.
He further said that, the banks’ achievements and growth is shown by their annual rate of profit. In Ethiopia, no bank is closed due to bankruptcy and this shows the healthy aspect of the banking business.
The net profit of the banks after tax in the last four years was also presented on chart. In the year 2011 EC all banks obtained profit after tax 22.48 billion Birr. By the year 2012 they profited 21.86 billion Birr after tax and by the year 2013 they raised their profit to 33.54 billion Birr after tax. By the year 2014 before tax they scored 49.9 billion Birr profit. The profit amount as compared to 2011 EC, it showed 122 % growth.
There are also other indicators which show the healthy performance of the financial institutions. The low rate of liquidated money also is an indicator of their good performance. In the last four years though the sector faced so much upside downs the banks’ liquidated money amount is only 3.87 %. The national bank directive stipulates that the amount of liquidated money rate should not surpass five percent in this case the banks can be said well performed.
As to Freezer, on other parameters the banks are well performed. Only the development bank of Ethiopia registered huge amount of liquidated money but by now the amount of liquidated money is highly declining. Currently the development bank of Ethiopia reducing its liquidated money from 47 percent to 15 percent and by the year 2014 it registered 3.4 billion birr profit.
As to Freezer, the reform introduced by the National Bank of Ethiopia and implemented by the commercial banks played pivotal role for the registered achievement. In the last four years the legal and institutional reform and work review, utilizing movable properties for collateral, the introduction of capital proclamation, allowing banks free from interest rate, encouraging diaspora Ethiopian to invest in the bank industry, allowing microfinance institution to upgrade themselves to the bank level based on their performance and capital amount played vital role.
The decision made by National Bank of Ethiopia to banks enhances their capital amount played crucial role for improving the sector.
THE ETHIOPIAN HERALD WEDNESDAY 24 AUGUST 2022
