Tuesday, February 26, 2013

Ethiopian Central-Bank Order May Mean More T-Bills, Less Lending

(Feb 26, 2013, Bloomberg)--An Ethiopian central bank order making lenders limit 40 percent of their loans to a year or less by 2015 may crimp credit growth by forcing more government- security purchases, the International Monetary Fund said.

A National Bank of Ethiopia directive from April 2011 already requires the 14 private banks in the Horn of Africa country to buy five-year bills equal to 27 percent of each loan given out. The Washington-based lender in September said that requirement was onerous and suggested lowering it so more credit would be available to banks. 

The new limit on the maturity of loans “will likely require private banks to purchase more five-year NBE bills at a very low interest rate of 3 percent,” IMF Resident Representative Jan Mikkelsen said in an e-mailed response to questions yesterday.. “This will further reduce private banks’ ability to extend loans to customers.”

Ethiopia, Africa’s second-most populous nation and the world’s fifth-biggest coffee grower, is struggling to fund a five-year industrialization plan that ends in mid-2015. The state-led program is designed to diversify the economy away from reliance on agriculture, which is 43 percent of output now. Read more from Bloomberg »

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