According to the directive, the central bank mandated that 27% of the gross loan disbursement by private banks will finance NBE bills. The Ethiopian Bankers Association appealed the directive, with the central bank, claiming that it will hamper the operation of the banks.
The banks are allegedly unable to disburse approved loans as credit becomes a tough thing to negotiate according to some bank customers. The banks blame the directive, which replaced the previous credit cap, for limiting the banks liquidity to facilitate loans it was said.
The present situation is in severe contrast to the excess liquidity experienced by the banks during the over two years of the credit cap policy. Private banks expressed resentment from the outset of the new directive being put in place as it did not apply to the state operated, Commercial Bank of Ethiopia.
The government of Ethiopia had stated, in a letter of intent to the International Monetary Fund that lifting the credit cap measure will be followed by a gradual decrease of the excess liquidity that the banking sector had accumulated during the credit cap. The directive mandating the purchase of bonds is said to be a natural result of this commitment.
Source: The Reporter
