Ethiopian Banking Sector Poised for Change as NBE Revisits Reserve Rules
In a move aimed at addressing persistent liquidity challenges within the Ethiopian banking industry, the National Bank of Ethiopia (NBE) is set to implement a revised directive governing reserve requirements. This initiative, reported in "The Reporter" on April 12, 2025, represents the latest in a series of reforms undertaken by the NBE over the past nine months, seeking to reshape how commercial banks manage their liquidity. Governor of NBE hopes the new directive will offer tangible relief to banks that have been grappling with a liquidity squeeze for over two years, an issue compounded by stringent credit growth caps designed to curb inflation.
Key Aspects of the NBE's Proposed Directive:
The directive introduces a "lagged reserve system" intending to bolster financial stability through the following key changes:
• Consolidated Accounts for Efficiency: The existing separate reserve and payment accounts will be unified into a single payment and settlement account. The NBE believes this consolidation will stimulate increased interbank lending activity.
• Automated Daily Reserve Blocking: A daily minimum reserve of five percent will be automatically blocked. Banks will have access to any funds exceeding this minimum, providing greater flexibility in day-to-day liquidity management.
• Shift to Monthly Averages for Reserve Calculations: While maintaining the seven-percent average reserve requirement, the NBE will now calculate this requirement based on monthly deposit averages instead of real-time balances. This transition is expected to offer banks enhanced stability and predictability in managing their reserves.
• Streamlined Reporting Requirements: In an effort to reduce compliance burdens, weekly reporting obligations will be replaced with a bi-monthly reporting schedule.
Source: "The Reporter," April 12, 2025
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