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Ethiopia lifts mandatory bond purchase policy imposed against private Banks

National Bank of Ethiopia _ Banks
National Bank of Ethiopia ( file)

BY  TESFA-ALEM  TEKLE
November 24, 2019

(ADDIS ABABA) – The National Bank of Ethiopia (NBE) this week lifted a long-running mandatory bond purchase policy which had been falling on private banks

The just removed financial rule used to force private banks to purchase a bond accounting  27 % of every loan they give to borrowers.

According to a statement Borkena received from the national Bank

today, the mandatory bond purchase policy had been in place since 2011.

NBE said the long existing mandatory bond purchase policy has been lifted this week and has become effective as of November 20, 2019.

The bank bond purchase policy was then implemented intending that the money raised from the private banks  through bond purchase manner would be used to finance government’s policy priorities on development.

Despite the questions raised over its effectiveness, the government had previously collected billions of dollars in a bid to provide loans to sectors that it believes should be prioritized.

According to the guidelines, each bond, which is five years old, has been reimbursed to private banks including interest.

However, it is also remembered that it has long been the subject of frequent complaints from private commercial banks.

One of the sources of the complaint was that the private banks are expected to keep interest rates below the current interest rate when they buy the bonds from the national bank.

While the minimum interest rate for banks remained at 5%, the interest rate for private commercial banks buying bonds used to stand at 3% thereby leading growing complaints from private banks.

As a result, the Bank has decided to implement a new revocation rule in the years after November 20, 2019.

Prior to the issuance of the new Directive, the state-owned commercial Bank however stated that ‘activities in accordance with the previous policy would be implemented in accordance with the previous guidelines’

(BORKENA)

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1 COMMENT

  1. Tigrai Development Association (TDA).was the only beneficiary of this rule that required bond purchases. TDA is a member based non-for-profit organization established in August 1989 in Washington DC USA. It moved its headquarter to Mekelle, Tigrai in May 1991 and was registered as rightful association in accordance with article 404 of the Ethiopian Civil Code and other relevant proclamations..

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