FINANCIAL

STABILITY
REPORT
NOVEMBER 2024
nbe.gov.et
Financial Stability Report
November, 2024

© 2024 National Bank of Ethiopia

Sudan Street, Addis Ababa, Ethiopia

www.nbe.gov.et
I FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

CONTENTS
LIST OF BOXES, TABLES AND FIGURES III

ABBREVIATIONS V

EXECUTIVE SUMMARY 1

1. INTRODUCTION 5

2. ECONOMIC AND FINANCIAL CONDITIONS 8

2.1 Global Economic Conditions 8
2.1.1 Economic Growth 8
2.1.2 Monetary Developments 9
2.1.3 Conclusion: Effects for Financial System Stability in Ethiopia 11
2.2 Domestic Economic Conditions 11
2.2.1 Economic Growth 11
2.2.2 Inflation, Interest Rate, and Yields 12
2.2.3 Fiscal Operations and Public Debt 15
2.2.4 Conclusion: Effects for Financial System Stability in Ethiopia 15

3. FINANCIAL SECTOR STABILITY AND RISK 18

3.1 Overview of the Financial Sector 19
3.2 Banking Sector 19
3.2.1 Commercial Banking Industry 19
3.2.2 Development Finance Institution 32
3.2.3 Regulatory Enhancements in the Banking Sector 33
3.2.4 Summary Assessment of Risks for Financial System Stability
Emanating from the Banking Sector 34
3.3 Microfinance and Capital Goods Finance
Business Sectors 37
3.3.1 Microfinance Sector 38
3.3.2 Capital Goods Finance Business Sector 41
3.3.3 Summary Assessment of Risks for Financial System Stability
Emanating from the Microfinance and Capital Goods
Finance Sectors 44
3.4 Insurance Sector 44
3.4.1 Performance of the Sector 45
3.4.2 Summary Assessment of Risks for Financial System Stability
Emanating from the Insurance Sector 47
3.5 Highlights on Saving and Credit and Cooperative Credit and Pension Funds 48
FINANCIAL STABILITY REPORT II
NATIONAL BANK OF ETHIOPIA

CONTENTS
4. FINANCIAL SYSTEM INFRASTRUCTURE DEVELOPMENT
AND RISKS 50
4.1 National Payment Systems Development 50
4.1.1 Payment Systems Performance 51
4.1.2 Interoperability 54
4.1.3 Summary Assessment of Payment System Risks and Outlook 54
4.2 Credit Market Infrastructure 56
4.3 Financial Inclusion and Consumer Protection 57

ANNEX 59
A. Selected Financial Data for the Commercial Banks 59
B. Selected Financial Data for the Development Bank of Ethiopia 61
C. Selected Financial Data for the Micro-finance Sector 62
D. Selected Financial Data for the Capital
Goods Finance Business Sector 63
E. Selected Financial Data for the Insurance Sector 64
III FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

LIST OF BOXES, TABLES AND FIGURES

Box 1: Transition to a Market-Based Monetary Policy Regime 9
Box 2: Ethiopia’s 2024 Reform of the Foreign Exchange Regime 13
Box 3: Capital Market Developments and the Launch of the Ethiopian Securities Exchange 20
Box 4: Commercial Bank of Ethiopia’s Resolution 23
Box 5: Payment System Regulatory Framework and Developments 50

Table 1: Policy (Benchmark) Interest Rates of Selected Countries,

2020-2024 (end of year) (percent) 10
Table 2: Total Assets of the Financial System and the GDP, 2023-2024
(billions of birr and percent) 18
Table 3: Banks' Major Balance Sheet Items (billion Birr) 20
Table 4: Banking Industry Market Shares, June 2024 versus June 2023 (percent) 22
Table 5: Banking Loans by Sector (billion birr) 25
Table 6: Results of Credit Risk Stress Test (increase in non-performing loans) 30
Table 7: Result of Liquidity Risk Stress Test (withdrawal of top 10 depositors) 31
Table 8: Result of Foreign Exchange Stress Test, September 2024 32
Table 9: Major Balance Sheet Items of the Ethiopian Microfinance Institution Sector,
2020-2024 (billion birr) 38
Table 10: Major Balance Sheet Items of the Capital Goods Finance Sector,
2020-2024 (million birr) 42
Table 11: Financial Performance of the Insurance Sector (billion birr) 45
Table 12: Ethiopian Automated Transport System Performance, 2020-2024
(transactions: number and value) 52
Table 13: Digital Financial Services Access Points (channels and instruments),
2020-2024 (number) 52
Table 14: Transactions Processed Through Digital Financial Services, 2020-2024
(number of transactions in million and value in billion birr) 53
Table 15: Interoperability Performance Through ATM, Point of Sales and
Person-to-Person transactions, 2020-2024 54
Table 16: Credit Market Infrastructure Data 57
Table 17: Commercial Banks Loans and Advances by Sector
(In millions of birr) As of June 2024 59
Table 18: Consolidated Balance Sheet of Commercial Banks In Millions of Birr 60
Table 19: Development Bank of Ethiopia’s Key Balance Sheet Items/Ratios,
June 2023-2024 (billion birr) 61
Table20: Microfinance Loan Distribution by Sector, 2020-2024 (billion birr) 62
Table 21: Major Profitability Items of the Microfinance Sector, 2020-2024 (billion Birr) 63
Table 22: Capital Goods Finance by Sector, 2020-2024 (million Birr) 63
Table 23: Profitability of the Capital Goods Finance Sector, 2020-2024 (million Birr) 63
Table 24: Capital Goods Companies Soundness Indicators, 2020-2024 (percent) 63
FINANCIAL STABILITY REPORT IV
NATIONAL BANK OF ETHIOPIA

LIST OF BOXES, TABLES AND FIGURES

Figure 1: Annual GDP Growth, World and Selected Economies, 2020-2025 (percent) 8
Figure 2: Annual Inflation Rate in East African Countries, 2020-2025,
December (percent) 9
Figure 3: Ethiopia’s GDP by Sector and Economic Growth, 2020-2025 (percent) 12
Figure 4: Inflation, Interest Rates and Yields, 2020-2025 (percent) 13
Figure 5: Exchange Rate, 2020-2025 (percent of GDP, ETB/US$) 14
Figure 6: Public Debt and Budget Balance, 2020-2025 15
Figure 7: Banks’ Non-Performing Loans to Gross Loans and Non-Performing
Loans Provisioning, 2020-2024 (percent) 26
Figure 8: Banking Industry Capital Adequacy Indicators, 2020-2024 (percent) 27
Figure 9: Banking Industry Liquidity Indicators (percent) 28
Figure 10: Banking Industry Income, Expenses and Net Income before Tax,
2020-2024 29
Figure 11: Banking Industry's Profitability Indicators, 2020-2024 29
Figure 12: DBE Balance Sheet-Based Soundness Indicators,
June 2023 and June 2024 (percent) 32
Figure 13: DBE Profitability Indicators, June 2023 and June 2024 (percent) 32
Figure 14: Capital Adequacy and Debt Equity Ratios in the Microfinance Sector,
2020-2024 (percent) 38
Figure 15: Asset Quality Ratios of the Microfinance Sector, 2020-2024 (percent) 39
Figure 16: Distribution of Microfinance Loans by Sector,
June 2023 and June 2024 (percent) 40
Figure 17: Major Earning Ratios of the Microfinance Sector, 2020-2024 (percent) 40
Figure 18: Microfinance Sector Liquidity Ratio Indicators, 2020-2024 (percent) 41
Figure 19: Capital Goods Finance by Client Sector,
June 2023 and June 2024 (percent) 42
Figure 20: Major Profitability Indicators of the Capital Goods Finance Sector,
2020-2024 (Percent) 42
Figure 21: Capital Goods Companies Soundness Indicators, 2020-2024 (percent) 43
Figure 22: General Insurance Business Operational Performance 46
Figure 23: Key Soundness Indicators in the General Business, 2020–2024 47
Figure 24: Financial Access Points and Usage, 2020-2024 58
Figure 25: Number and Density of Credit Accounts, 2020-2024 58
Figure 26: DBE Major Balance Sheet Items, June 2023-2024 (billion birr) 61
Figure 27: DBE Condensed Income Statement, June 2023-2024 (billion birr) 62
Figure 28: Distribution of MFIs’ NPLs by Borrowing Sector,
June 2024 (percent of total) 62
Figure 29: Gross Premium by Class of Business, 2020-2024 (million Birr) 64
V FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

ABBREVIATIONS
ACH – Automated Clearing House
ATM – Automated Teller Machine
CAR – Capital Adequacy Ratio
CBE – Commercial Bank of Ethiopia
CRS – Credit Reporting System
DBE – Development Bank of Ethiopia
DER – Debt Equity Ratio
DFS – Digital Financial Services
EATS – Ethiopian Automated Transfer System
ETB – Ethiopian birr
GDP – Gross Domestic Product
HGER 2.0 – Second Homegrown Economic Reform
IFRS – International Financial Reporting Standards
IMF – International Monetary Fund
LAMC – Liability and Asset Management Corporation
MFI – Micro-Finance Institution
NBE – National Bank of Ethiopia
NFIS-II – National Financial Inclusion Strategy-II
NPLs – Non-Performing Loans
P2P – Person-to-Person
PAR – Portfolio at Risk
PoS – Point of Sale
RoA – Return on Assets
RoE – Return on Equity
RTGS – Real-Time Gross Settlement System
SACCOs – Savings and Credit Cooperatives
US$ – United States dollar
FINANCIAL STABILITY REPORT 1
NATIONAL BANK OF ETHIOPIA

EXECUTIVE SUMMARY
National Bank of Ethiopia (NBE) issues this second Financial Stability Report in
accordance with its responsibility to uphold a sound financial system in Ethiopia. The
report aims to promote financial stability in the country by examining developments
and risks in the financial sector as well as the broader economy during the course of
the past year. It is the second annual Financial Stability Report to be published by
NBE and covers the period to June 2024 1, but it also addresses some major reforms
and their effects in the period July to September 2024. In addition, it provides an
outlook on issues potentially affecting the stability of Ethiopia’s financial system in the
remainder of 2024 and 2025.

The report examines external developments and risks to the economy and financial
sector posed by the wars in Ukraine and the Middle East and other global shocks. It
also highlights domestic factors, including the potential impacts of droughts and
conflicts in parts of Ethiopia, and risks emanating from the financial industry’s
structure. In addition, the report assesses the limitations and contributions of the
financial sector’s infrastructure to its overall stability. The report provides a
comprehensive analysis of the risks and resilience of Ethiopia’s banking sector, which
still accounts for 96 percent of the financial sector’s total assets as of June 2024.

According to the latest forecast by the Ministry of Planning and Development,

following growth of 8.1 percent in 2023-24, the Ethiopian economy is expected to
grow by 8.4 percent in 2024-25. The continued implementation of various
macroeconomic, structural, and supply-side reforms under the second Homegrown
Economic Reform (HGER 2.0) is expected to support higher growth and ease
inflation over the medium term. Likewise, a significant expansion in social and capital
spending by government is envisaged over the coming year, without much
deterioration in the fiscal deficit, thanks to considerably improved revenue
collections and a resumption in the influx of donor grants and loans. On the inflation
front, continued tight monetary policies as well as strong agricultural output are
anticipated to lead to gradually declining inflation over the course of 2025, despite a
moderate and temporary spike that is likely over the coming months due to
exchange rate pass-through effects. On the balance of payments front, a significant
improvement in the external position — including much improved foreign exchange
reserves — is anticipated due to the recent exchange rate adjustment, a declining

1 The report is based on official data for Ethiopia’s fiscal year up to the end of June 2024, but it incorporates,
where appropriate, more recent data up to October 2024.
2 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

trade deficit, increased remittances, and rising capital inflows from official and
private sector sources. Taken together, while the macroeconomic environment has
shown broadly improving trends over the past year and is expected to show ongoing
improvement over the course of 2025, potential headwinds are possible from policy
efforts to reduce still-high inflation, security risks, and commodity price volatility.

Ethiopia’s banking sector remains stable and resilient. Risks in the reporting period
were mostly moderate and stable, although the outlook overall points to increasing
risk levels for financial institutions due to external and domestic developments;
nevertheless, the systemic risk-level remains limited. Credit risk is lower than the high
credit concentration suggests, because loans to the private sector are relatively
diversified. In addition, the credit risk stress test shows that even a severe shock
would not pose a systemic threat. The banking industry as a whole is also found to
exhibit low liquidity risk and shows resilience to short-term liquidity shocks, despite
some downside risks. Conversely, operational risks are significant in the banking
industry and are expected to rise further in the short and medium term, with incidents
of fraud, social engineering, insider threats and third-party risks on the rise.

With respect to market and foreign exchange risks, except for a few heavily affected
financial institutions, the banking sector has also performed well during the
adjustment of the birr exchange rate reform in July 2024.

Considering these various threats to financial stability, NBE directives have been
issued in 2024 to reduce observed risks and to improve the resilience of banks to
shocks in a number of areas. In particular, beyond the system-wide risks, directives
put in place recently by NBE have sought to prevent and contain risks in key areas
such as governance, asset classification, lending to individuals with significant
influence, large exposures, and related party lending. NBE also continues to work
with individual banks that are more exposed to these challenges, and struggle to
cope with bank-specific risks.

In the microfinance sector, the capital adequacy ratio, and liquidity ratio are all well
within NBE’s parameters and have improved over the course of the review period.
The capital goods finance sector’s risk rating is moderate, with low capital risk and
moderate ratings for asset quality and systemic risk.
FINANCIAL STABILITY REPORT 3
NATIONAL BANK OF ETHIOPIA

The insurance sector also remains resilient overall, but earnings and concentration
risks are rated as high and may call for regulatory actions. Tighter regulatory
standards on credit and deposit concentration risks are necessary, as indicated by
the high concentration of loans and deposits. NBE intends to mitigate market risks by
implementing prudent measures and enhancing governance standards and
practices. These measures will also address the discrepancy between the proportion
of fixed rate assets and variable rate deposits.

The Ethiopian financial sector’s infrastructure is developing, but it requires further

improvements in structural, operational, and technical efficiencies. A more refined
and explicit standard for risk measurement in keeping with the rapidly evolving
landscape of digital financial technologies is one of the key policy developments
anticipated to address the operational and technological threats that currently exist.
FINANCIAL STABILITY REPORT 5
NATIONAL BANK OF ETHIOPIA

1. INTRODUCTION
This 2024 Financial Stability Report is the second such document produced by NBE
in line with its mandate to maintain a healthy financial system in the country. 2
The
report discusses trends in and risks to Ethiopia’s economy and financial sector,
focusing on developments in the reporting year 2023-2024 – but it also addresses
important issues that have occurred up to September 2024, and details how and to
what extent the financial sector has been resilient, and whether it is expected to
remain so. It also outlines recent policy and legal developments, as well as trends in
the financial system’s infrastructure that are expected to enhance the sector’s stability
in the remainder of 2024 and 2025.

The report is based on official data for Ethiopia’s fiscal year to the end of June 20243
and incorporates, where appropriate, IMF data released in October 2024.

The stability of Ethiopia’s financial system is affected by multiple factors, from global
to domestic ones. These include real economy factors, the structure and operation of
the financial sector and its sub-sectors, and the financial system infrastructure.

The following primary report chapters address each of these three groups:
Chapter 2 addresses projected developments and those recorded in recent years,
both in the global and local Ethiopian economies, drawing conclusions on how these
developments constitute risks or stabilizing factors for the country’s financial system;
Chapter 3 analyzes Ethiopia’s financial sector and its sub-sectors, identifying
inherent risks to systemic stability; and
Chapter 4 analyzes the financial system’s infrastructure and related policy
developments, as well as financial inclusion and consumer protection, and their links
with the stability of the country’s financial system. Each major section ends with a
summary risk assessment of the stability of Ethiopia’s financial system.

2 See Article 4 of Proclamation No. 591/2008.

3 Ethiopia’s fiscal year starts on the 8th of July and ends on the 7th of July, but this report bases its analyses on
data up to the 30th of June of each year.
2.
ECONOMIC
AND
FINANCIAL
CONDITIONS
8 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

2. ECONOMIC AND
FINANCIAL CONDITIONS
2.1. GLOBAL ECONOMIC CONDITIONS
2.1.1 Economic Growth
The IMF’s most recent projections, released in October 2024, estimate global growth
to decline slightly from 3.3 percent in 2023 to 3.2 percent in 2024 and remain at that
latter rate in 2025. Economic activity has not yet returned to its pre-pandemic growth
path. Advanced economies are anticipated to experience only slightly higher growth
in 2024 and 2025, at 1.8 percent, compared to 1.7 percent in 2023. The United States
shows stronger consumption and nonresidential investment while growth in the euro
area improves due to better export performance, in particular of goods. Growth in
emerging markets and developing economies is projected to decrease from 4.4
percent in 2023 to 4.2 percent in 2024 and remain at that level in 2025 owing to
persistent weakness in the real estate sector and low consumer confidence in China
(Figure 1).

In Sub-Saharan Africa, growth is expected to remain at 3.6 percent in 2024, the same
as in 2023, and increase to 4.2 percent in 2025, as the adverse impacts of prior
weather shocks abate, and supply constraints gradually ease. According to IMF
projections, Ethiopia’s growth of 6.1 percent in 2024 4
and 6.5 percent in 2025 is
lower than in 2023 (7.2 percent), but it nonetheless still positions the country among
the 20 fastest-growing economies in the world (Figure 1).

Figure 1: Annual GDP Growth, World and Selected Economies, 2020-2025 (percent)
2020 2021 2022 2023 2024* 2025*

8
6
4
2
0
-2
-4
-6 Advanced United Emerging Market Sub-Saharan
World and Developing China Ethiopia
Economies States Africa
Economies

Source: IMF World Economic Outlook Database: October 2024 Edition; *Projections

4
Government projects a growth rate of 8.2 percent for 2024; see section 2.2.1 below.
FINANCIAL STABILITY REPORT 9
NATIONAL BANK OF ETHIOPIA

2.1.2 Monetary Developments

According to the IMF, global annualized headline inflation is set to fall further, from
an average of 6.7 percent in December 2023 to 5.8 percent in December 2024 and
4.3 percent in December 2025, with advanced economies leading this decline.
Headline inflation in emerging markets and developing economies is projected to
decline from 8.1 percent in December 2023 to 7.9 percent in December 2024, and
then fall at a faster pace to 5.9 percent in December 2025. In contrast, inflation
forecasts for Sub-Saharan Africa remain in double-digit territory because of high
inflation in some large economies, driven by the pass-through of currency
depreciation and administrative price adjustments.

Except for Rwanda, which recorded 14 percent inflation year-on-year in December

2023, annual inflation in most East African countries apart from Ethiopia remained in
single digits in 2023, despite the shock to commodity prices following the wars in
Ukraine and the Middle East, and other factors. Ethiopia’s inflation, which peaked in
2022, is projected to decline further, from 30.2 percent in December 2023 to 21
percent and 15 percent by the end of 2024 and 2025, respectively (Figure 2).

Figure 2: Annual inflation rate in East African Countries, 2020-2025, December (percent)
2020 2021 2022 2023 2024* 2025*
40
35
30
25
20
15
10
5
0
Ethiopia Kenya Rwanda Tanzania Uganda
Source: IMF; *Projections

Box 1:
Transition to a market-based monetary policy regime

On July 9th, 2024, NBE announced the launch of a new monetary policy framework.
Most notably, the NBE’s mandate has been clearly defined to prioritize price stability
relative to other goals. The framework contains the following four measures:
• NBE is using its policy interest rate (known as the national bank rate or NBR)
as the primary means of signaling its policy stance and influencing broader
10 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

monetary and credit conditions. NBE is setting its initial policy interest rate
at 15 percent.
• NBE is conduct a monetary policy-related auction every two weeks.
• NBE has also introduced overnight lending and overnight deposit facilities
for banks that might need to manage their liquidity positions over just a
one-day time horizon.

Setting a benchmark policy rate, the start of open market auctions, and the
introduction of overnight facilities for banks are important initiatives to help NBE fulfill
the vital responsibilities – most notably to ensure price stability – set for it in its own
strategic plan and NBE establishment proclamation.

Ethiopia's monetary policy reforms are helping to improve financial stability in several
ways by curbing inflation, modernizing the financial sector, developing financial
market infrastructures among others.

Interest rate developments in 2024 mostly showed declining trends, reflecting

reduced inflation and continued attempts to stimulate economic growth. For example,
the European Central Bank and the US Federal Reserve cut policy rates from 4.5
percent and 5.375 percent in December 2023 to 3.5 percent and 4.875 percent in
September 2024, respectively, with most of the cuts coming after June 2024 (Table 1).
Most emerging economies also cut rates. Among the fewer countries increasing policy
rates are Russia and Türkiye, while India held its policy rate constant. Russia’s central
bank raised its benchmark interest rate from 16 percent to 19 percent as the
government’s military spending strains the economy. Türkiye’s rate increased from
42.5 percent in December 2023 to 50.0 percent in September 2024 as the Central
Bank of Türkiye aims to tackle inflation. In Ethiopia, NBE has set its initial policy interest
rate at 15 percent on July 9, 2024, due to the introduction of the new monetary policy
framework on July 9th, 2024, to align its policy tools with global best practices.

Table 1: Policy (Benchmark) Interest Rates of Selected Countries, 2020-2024 (end of year) (percent)
2020 2021 2022 2023 2024 (Jun) 2024 (Sep)

Developed Euro area 0 0 2.5 4.5 4.25 3.5

economies United States 0.125 0.125 4.375 5.375 5.375 4.875

Original Brazil 2 9.25 13.75 11.75 10.5 10.75

BRICS China 3.85 3.8 3.65 3.45 3.45 3.35
India 4 4 6.25 6.5 6.5 6.5
Russia 4.25 8.5 7.5 16 16 19
South Africa 3.5 3.75 7 8.25 8.25 8

Other Morocco 1.5 1.5 2.5 3 2.75 2.75

developing Saudi Arabia 1 1 5 6 6 5.5
economies Türkiye 17 14 9 42.5 50 50
Ethiopia 15

Source: Bank for International Settlements (2024); for Ethiopia – NBE

FINANCIAL STABILITY REPORT 11
NATIONAL BANK OF ETHIOPIA

2.1.3 Conclusion: Effects for Financial System Stability in Ethiopia

Overall, Ethiopia’s financial institutions, and the financial system at large, face a
variety of risks due to reduced global economic growth and multiple
macroeconomic and geopolitical shocks. These have contributed to double-digit
inflation at home and affected the Ethiopian economy’s external position by driving
up import costs and stifling domestic economic activity and exports, thereby raising
risks for financial institutions in the country. Developments in the various foreign
exchange markets and policy interest rates continue to constitute risks that financial
institutions face in Ethiopia, although the risk level has been reduced as a result of the
exchange rate reform undertaken in July 2024.

Positively, though, global growth has proven remarkably resilient in the face of
recurring shocks, rising geopolitical tensions, and violent conflicts.

2.2 DOMESTIC ECONOMIC CONDITIONS 5

Domestic factors impact on the health of the Ethiopian financial system much more
directly and significantly than global conditions. According to NBE’s analysis, certain
factors raise risks while others support stability and resilience.

2.2.1. Economic Growth

Over the last five years, Ethiopia's economy has registered high growth, which is
projected to continue in the coming years. Real GDP grew at above 6 percent each
year, higher than the average growth for Sub-Saharan Africa (which is projected at
3.6 percent in 2024 by IMF). Real GDP has grown by 8.1 percent in the year to the
end of June 2024 and is anticipated to grow by 8.4 percent in 2024-25, driven
equally by services, agriculture, and industry from the supply side, and by personal
spending and investment from the demand side (Figure 3).

The composition of GDP continued to change gradually. The share of services in

GDP in 2024 decreased slightly for the first time in years to 40.2 percent, from 40.3
percent in 2023, but it still surpasses the level of 39.5 percent recorded in 2020,
which contracted as a result of COVID-19. The share of industry increased slightly –
for the first time since 2021 – from 28.8 percent in 2023 to 29.1 percent in 2024.
The share of agriculture declined steadily from 32.7 percent in 2020 to 31.8 percent
in 2024.

5
Data for domestic economic conditions are all based on Ethiopian fiscal year which ended in June.
12 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

Figure 3: Ethiopia’s GDP by Sector and Economic Growth, 2020-2025 (percent)

100% 10.0
Real GDP Growth 40.2
39.5 39.6 40.0 40.3 9.0
8.1 8.4
Service 7.2 8.0

share of GDP 7.0

6.3 6.4
6.1 6.0

Industry 50% 5.0

share of GDP 29.0 29.3 28.9 28.8 29.1

4.0

3.0

Agriculture 2.0
32.7 32.5 32.4 32.1 31.8
share of GDP 1.0

0% 0.0

2020 2021 2022 2023 2024 2025*

Source: Ministry of Planning and Development

2.2.2 Inflation, Interest Rate, and Yields

Over the last five years inflation has remained high. However, notwithstanding a
number of unfavorable factors, such as inflation expectations, shortage of foreign
currency, instability in parts of the country, and the rise in commodity prices,
year-on-year inflation fell from 29.3 percent in June 2023 to 19.9 percent as of June
2024 (Figure 4). Inflation continued to fall even after the adoption of a
market-determined exchange rate in July 2024, reaching 17.5 percent at the end of
September 2024. In addition to the time lags involved to allow for the exchange rate
effects to pass through to domestic prices, a large share of consumer prices followed
the parallel market exchange rate and limited percent of imports in private
consumption spending occurred at the official exchange rate. Following the
exchange rate reform, and taking into account anticipated pass-through effects, the
IMF projects annual inflation will be around 24 percent in June 2025 and then fall to
12 percent in June 2026.

The domestic interest rate has remained stable and the yield on treasury bills has
slightly increased. Commercial banks’ average long-term lending interest rates have
been around 17 percent over the last four years (Figure 4). This has remained stable
even after the monetary and exchange rate reforms. However, the yearly weighted
average yield on government treasury bills was 9.74 percent in 2024, slightly up
from 9.7 percent in 2023 and more than double the 4.54 percent recorded in 2020.
The yield has increased to 10.65 percent in the first quarter of fiscal year 2024-25,
which ended in September 2024. Both the long-term lending rate and yield have
remained below inflation.
FINANCIAL STABILITY REPORT 13
NATIONAL BANK OF ETHIOPIA

Figure 4: Inflation, Interest Rates and Yields, 2020-2025 (percent)

40%
34.0
35%
29.3
30%
24.6
25%
21.6 19.9
PERCENT

20% 17.5
17.0 16.9 17.0 16.9
15%
16.5

10%
10.65
9.46 9.70 9.74
5% 7.97
4.54
0%
2020 2021 2022 2023 2024 2025 Q1*

Average T-bills rate Average Long Term lending rate Headline Inflation (%)

Source: NBE and *Projections by the IMF Current Account Balance and Exchange Rate

While the current account deficit has been declining — relative to GDP — over the
past few years, there was a widening gap (of nearly 100 percent as of June 2024) that
emerged between the official and parallel market exchange rates. To address this
major distortion that was segmenting the foreign exchange market and substantially
reducing foreign currency flows into the banking system, an extensive reform of
Ethiopia’s foreign exchange regime was initiated on July 29th, 2024. This reform
aimed to fundamentally address Ethiopia’s balance of payments vulnerabilities in a
comprehensive and sustainable manner (see Box 2), and it has since allowed the official
exchange rate to move steadily towards a market-determined exchange rate.

Box 2:
Ethiopia’s 2024 Reform of the Foreign Exchange Regime

On July 29th, 2024, NBE issued the Foreign Exchange Directive (FXD/01/2024) with
immediate effect. Besides the move to a market-based determination of the exchange,
this new directive included many other far-reaching measures, including:
• Removal of foreign exchange surrender requirements to NBE.
• Removal of more than 30 import restrictions.
• Improved foreign exchange account retention rules for exporters.
• Opening the sector to independent foreign exchange bureaus.
• Allowing foreign exchange accounts for qualifying residents and
simplification of foreign exchange account rules.
• Allowing Ethiopian companies and banks easier access to foreign loans.
• Enabling foreign participation in the upcoming Ethiopian
Securities Exchange.
14 FINANCIAL STABILITY REPORT
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• Granting special foreign exchange privileges to companies operating in

special economic zones.
By adopting a comprehensive approach, the foreign exchange reform is expected to
address acute foreign exchange shortages, enhance export competitiveness, attract
foreign direct investment, and complement multiple other macroeconomic reforms
being put in place to enhance conditions for private sector enterprises to grow and
thrive in the Ethiopian economy.

Although a full-scale assessment of the foreign exchange regime’s reform would still
be premature, the early results are positive and encouraging. The bank and parallel
market exchange rates have largely converged (with the gap at or below 5 percent),
allowing for a significant shift of trading and foreign exchange activity towards the
formal banking sector. Exports for the first quarter are up 81 percent year-on-year
while private remittances are up by 26 percent over the same period. Foreign
exchange transaction volumes have risen steadily in the three months since the
foreign exchange reform was introduced, with banks now making— on average
—around US$500 million in monthly foreign exchange purchases and US$713
million in monthly foreign exchange sales from/to their customers. Foreign exchange
reserve levels at the central bank have risen by more than 240% at the end of
October 2024 as compared to June 2024 levels, while foreign exchange reserves at
commercial banks are also up substantially and stood at US$2.4 billion as of the end
of October 2024. Higher foreign exchange reserves have allowed banks to
significantly reduce their net foreign exchange obligations (net short positions) and
make increasingly greater allocations to business and consumers over the past few
months. Reflecting these developments, and particularly a shrinking trade deficit, the
balance of payments is showing systemic improvement, with the current account
balance in the first quarter of the fiscal year (July-September 2024) turning into a
surplus of US$573 million compared to a deficit of US$1.258 billion in the same
period last year.

Figure 5: Exchange Rate, 2020-2025 (percent of GDP, ETB/US$)

Official Exchange Rate ( ETB / US$)

140
117.5
120

100

80
53.3 57.3
60 48.6
39.0
40 31.3

20

0
2020 2021 2022 2023 6.30.2024 10.23.2024
Source: NBE and *Projections by the IMF World Economic Outlook: October 2024 Edition
FINANCIAL STABILITY REPORT 15
NATIONAL BANK OF ETHIOPIA

2.2.3 Fiscal Operations and Public Debt

Both public debt and the budget deficit decreased in 2024 (Figure 6). Public external
debt significantly reduced from 17.2 percent of GDP in 2023 to 13.7 percent in 2024
while public domestic debt decreased from 22.1 percent of GDP in 2023 to 18.7
percent in 2024. The IMF projects external debt to reach 28.3 percent of GDP in
2025, in response to the depreciation of the birr, and domestic debt to decline to 14.5
percent of GDP, assuming that fiscal financing through direct advances by NBE has
been eliminated. Likewise, the budget deficit decreased from 2.5 percent of GDP in
2023 to 2.1 percent in 2024, as a result of significant improvements in revenue
growth, the implementation of the fiscal consolidation strategy, and the resumption of
the influx of donor funds. The IMF also predicts the budget deficit to further decrease
to 1.7 percent of GDP in 2025.
Figure 6: Public Debt and Budget Balance, 2020-2025
30
28.3 Budget balance (% of GDP)
26.8 27.1
26.5 2020 2021 2022 2023 2024 2025*
25 24.4 24.8 0
22.1 22.1
-0.5
20
17.2 18.7 -1

-1.5
PERCENT

15
13.7 14.5 -2 -2.1
-2.5 -2.5 -2.5
10 -2.5
-2.8
-3
5
3.5 -3.4

0 -4
2020 2021 2022 2023 2024 2025*

Domestic debt stock to GDP ratio External debt stock to GDP ratio

Source: Ministry of Finance and *Projections by the IMF Country Report: July 2024 and African Economic Outlook, 2024

2.2.4 Conclusion: Effects for Financial System Stability in Ethiopia

Overall, with major fiscal, monetary, and exchange rate reforms put in place in recent
months, there is a broadly positive macroeconomic outlook for 2024-25. Moreover, the
adopted macroeconomic stabilization measures have been put in place in a manner
that minimizes adverse effects thanks to the inclusion of extensive mitigating measures
(especially subsidies for fuel, fertilizers, edible oil and medicine as well as higher
allocations for civil service salaries and safety net benefits). The banking system should
also benefit from growth momentum, given expectations of record crop output, a jump
in government social and capital spending, rising mining developments, and continued
expansion in private sector services and tourism. While the macro-outlook is thus
generally favorable for the year ahead, some potential risks to the Ethiopian financial
sector may arise from the impact of tightening monetary policies, from domestic
security risks, and from external factors such as commodity price volatility or shocks to
global trade movements. Finally, the recently introduced NBE directives, which are
intended to strengthen the financial sector’s long-term viability, may impact financial
positions reported by banks in the short term, to the extent the new standards are
significantly different from the past practices of banks.
3.
FINANCIAL
SECTOR STABILITY
AND RISK
18 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

3. FINANCIAL SECTOR STABILITY

AND RISK
This chapter analyzes 6 stability and risks in the Ethiopian financial sector across the
banking, microfinance and capital goods financing, and insurance sectors, which are
all regulated and supervised by NBE. Policy actions taken by the government and the
regulator remain supportive to the sector’s resilience and financial stability.7

Ethiopia’s primary and secondary financial markets are still in the early stages of
development: the Capital Market Authority was established in June 2021, and the
Ethiopian Securities Exchange is currently finalizing preparations to launch before the
end of 2024.

3.1 OVERVIEW OF THE FINANCIAL SECTOR

At the end of June 2024, total assets of the financial sector amounted to just over
3,409 billion birr, 15.1 percent higher than a year earlier (Table 2). These assets
constituted 29.5 percent of nominal GDP, compared with 37.6 percent at the end of
June 2023. The banking sector continued to dominate the financial sector, with its
total assets accounting for 96.1 percent of total financial sector assets at the end of
June 2024 (similar to a year before). This implies that the stability of the Ethiopian
financial system largely depends on the health and stability of the banking sector. As
a result, the banking sector is analyzed in more detail in the following sections.

Table 2: Total Assets of the Financial System and the GDP, 2023-2024 (billions of birr and percent)

June
Share in Share in
June June 2024 vs.
Sector/Assets/GDP total total
2023 2024 June
assets (%) assets (%)
2023 (%)
Banks 2,845.9 96.1 3,277.3 96.1 15.2
Commercial banks 2,689.1 90.8 3,095.1 90.8 15.1
Development bank 156.8 5.3 182.2 5.3 16.2
Microfinance 61.7 2.1 60.1 1.8 -2.6
Capital goods finance 5.4 0.2 6.4 0.2 18.5
Insurance 49.7 1.7 65.6 1.9 32.0
Total financial system assets 2,962.7 100 3,409.4 100 15.1
Nominal GDP 8,722.0 11,574.7 46.9
Total assets (%) of GDP 37.6 29.5 -8.1

Source: NBE Database

6
All financial data used in this chapter is provisional (not audited).
7
The report does not provide a detailed analysis of savings and credit cooperatives and pension funds.
 FINANCIAL STABILITY REPORT 19
NATIONAL BANK OF ETHIOPIA

3.2 BANKING SECTOR

By the end of June 2024, 32 banks (all of them domestic) operated in Ethiopia. Of
these, the Development Bank of Ethiopia (DBE), a development finance institution,
accounted for nearly 5 percent of the banking sector’s assets. The other institutions
are made up of four fully-fledged interest-free banks, six former microfinance
institutions (MFIs) that graduated to commercial banks8, and 22 conventional
commercial banks, including the country’s largest bank, the Commercial Bank of
Ethiopia (CBE). Except for the DBE and CBE, all are private banks. As the following
sections show, the banking sector is assessed as safe, sound, and stable as of the end
of June 2024.

3.2.1 Commercial Banking Industry

3.2.1.1 Role in the Economy

The banking sector is very important to the Ethiopian economy. Total deposits at the
end of June 2024 reached nearly 2.5 trillion birr, and total loans and bonds of banks
amounted to just under 2.2 trillion birr (Table 3). Both deposits and loans increased in
the year to June 2024, albeit at lower rates than a year earlier: Total bank deposits
grew by 15.4 percent, driven in particular by growth in demand for time deposits,
compared to 24.6 percent in the year to June 2023. Similarly, loans and bonds grew
by 16.1 percent to June 2024, down from the 24.3 percent annual growth rate
recorded to June 2023.

GDP increased at a faster rate than deposits and loans in the reporting period. As a
result, the share of deposits in GDP decreased to 21.6 percent from 24.8 percent at
the end of June 2023, and that of loans and bonds from 21.7 percent to 19.0 percent.
The share of loans in GDP is low by international comparison, and the objective is to
increase it significantly in the medium term, thereby also reducing credit
concentration risk (see Section 3.2.1.3 below). A related positive development in this
regard is the shift in the loan portfolio. Since 2021, total outstanding loans to the
private sector have exceeded loans to the public sector.

Total assets of commercial banks reached 3.3 trillion birr at the end of June 2024 –
an increase of 15.2 percent from the previous year; the growth rate is less than the
19.9 percent recorded in June 2023. The major contributors to total assets growth
were loans and advances, and bonds, which together accounted for the largest share
(66.9 percent) of total assets.

8
Of which one is full-fledged interest-free bank, thus also included among the four interest free banks.
20 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

Table 3: Banks' Major Balance Sheet Items (billion Birr)

Particulars June June Growth June Growth June Growth June Growth
2020 2021 (%) 2022 (%) 2023 (%) 2024 (%)
Total Assets (net) 1,462.4 1,843.2 26.0 2,374.1 28.8 2,845.9 19.9 3,277.3 15.2
Loans & Bonds 1,085.8 1,317.3 21.3 1,521.1 15.5 1,890.3 24.3 2,194.0 16.1
Loans and Advances (net) 559.0 766.9 37.2 986.7 28.7 1,247.5 26.4 1,440.9 15.5
Bonds 526.8 550.4 4.5 534.4 -2.9 642.8 20.3 693.1 7.8
Total Deposits 1,041.9 1,360.1 30.5 1,735.3 27.6 2,162.2 24.6 2,494.7 15.4
Saving deposits 622.5 855.8 37.5 1,085.3 26.8 1,370.1 26.2 1,524.3 11.3
Demand deposits 356.4 439.6 23.3 567.1 29.0 679.9 19.9 813.2 19.6
Time deposits 63.1 64.7 2.5 83.0 28.3 112.2 35.2 157.1 40.0
Regulatory Capital 105.2 121.9 15.9 168.9 38.5 212.4 25.7 258.3 21.6
GDP 3,374.7 4,341.0 28.6 6,157.0 41.8 7,881.6 41.7 11,574.7 10.7
Shares (%)
Loans in GDP 16.6 17.7 16.0 14.3 12.4
Deposits in GDP 30.9 31.3 28.2 24.8 21.6
Loans & Bonds in GDP 32.2 30.3 24.7 21.7 19.0
Loans & Bonds in Total Assets 74.2 71.5 64.1 66.4 66.9
Loans & Bonds to Total Deposits 104.2 96.9 87.7 87.4 87.9

Source: NBE Database & Monetary and Financial Analysis Directorate of NBE

In line with international trends, Ethiopia established a deposit insurance scheme in

2021. By reducing the likelihood of a “run” on the banks and microfinance institutions,
this is expected to contribute significantly to stability in the banking and microfinance
sectors and, hence, to the overall financial system. Beyond the traditional banking and
MFI sub-sectors, Ethiopia’s financial sector is set to be transformed in its size and
scope with the imminent launch of the first organized securities exchange, the
Ethiopian Securities Exchange (See Box 3).

Box 3:
Capital Market Developments and the Launch of the
Ethiopian Securities Exchange (ESX)

The development of the capital market’s ecosystem has recorded significant strides since
2019 when NBE began spearheading it through various foundational initiatives. NBE
played the primary role in introducing the Ethiopian Capital Market Proclamation
1248/202, and established a dedicated project team that was tasked with laying down the
basis to create the Ethiopian Capital Market Authority and the Central Securities
Depository (CSD). The government, through Ethiopian Investment Holdings, also
championed the establishment of the Ethiopian Securities Exchange (ESX), which is
expected to be formally launched soon.

The capital market’s establishment plays an indispensable role in achieving development

goals by providing the public and private sectors with access to long-term financing. Its
presence enhances financial avenues and introduces innovative instruments that improve
access to finance and promote savings and investment. For the private sector, these
markets offer risk-based, patient, long-term capital, fostering growth and development.
This process also significantly elevates the standards of financial reporting, corporate
governance, and disclosure practices, enhancing the overall financial and accounting
capacity of the nation. Equally important is the role of the capital market in bolstering
 FINANCIAL STABILITY REPORT 21
NATIONAL BANK OF ETHIOPIA

domestic financing for the public sector. Access to debt financing via bonds issued on the
domestic capital market gives the government of Ethiopia efficient avenues for raising
domestic financing, which complements NBE’s monetary policy reforms.
The Ethiopian Capital Market Authority has, to date, played an active role in laying down
the relevant legal and regulatory framework to establish a safe, transparent, and efficient
capital market. The introduction of directives regulating the manner with which securities
are issued and traded, the licensing of capital market service providers, securities
exchanges, and over-the-counter platforms, play a critical role in introducing order,
transparency, and efficiency in the operation of the nation’s capital market.

Most importantly, the imminent launch of the ESX marks a pivotal milestone in the
Ethiopian capital market ecosystem’s development. As the first organized securities
exchange in the nation, established through a partnership between the public and private
sectors, ESX is poised to play a crucial role in advancing the government’s economic
reform agenda. Its formation signifies a transformative step towards enhancing the
resilience and inclusivity of the financial sector, positioning Ethiopia on a new trajectory of
financial modernization and integration.

ESX will be a fully electronic and modern market from its launch. The exchange’s modern
Automated Trading System, which is integrated with NBE’s CSD, will transform the
hitherto manual securities trading environment into a high-speed, efficient electronic
marketplace. The introduction of modern broker-back office and order management
systems that include mobile trading applications will allow Ethiopians across the country
to directly participate in the market, there by democratizing the capital market ecosystem.

The multifaceted significance of the ESX for the financial sector is evidenced by the fact
that, ahead of its launch, the exchange is currently serving as the market infrastructure
and technology platform for the interbank money market – which was launched by NBE
and commercial banks in November 2024. The introduction of this electronic interbank
money market is expected to play a pivotal role in enhancing the transparency, reliability
and efficiency of the money market, thereby boosting the financial sector’s overall
liquidity. With the launch of a money market through an online platform administered by
ESX, banks can now lend to and borrow from each other on a modern electronic
platform. Within the first three weeks of its operation the market transacted more than 20
billion birr, signifying its immense potential.

3.2.1.2 Industry Structure and Systemic Risk

Of the 31 commercial banks registered by the end of June 2024 in Ethiopia, one is a
state-owned bank; four are private interest-free banks; 9 six are MFIs transformed into
commercial banks; and the rest are conventional private commercial banks.

Based on asset size, NBE distinguishes three types of commercial banks: large,
medium, and small banks. Their respective roles in, and share of, the market (Table 4)
are as follows:

9
One of these is majority-owned by a regional government.
22 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

Large Bank: The only large bank in the country is the state-owned CBE. Although its
market share declined from the previous year, CBE still remains a systemically
important bank. At the end of June 2024, its total assets and deposits constituted just
under half (47.9 percent and 47.1 percent, respectively) of the whole banking sector.
However, its total capital accounted for just less than a quarter (24.2 percent) of the
total.

Medium Banks: The combined share of the five medium-sized banks 10 in the industry
increased for all key balance sheet items in the year to the end of June 2024
compared to a year earlier: combined assets went from 28.0 percent to 28.9 percent
of the sector’s total assets, total deposits from 29.4 percent to 30.3 percent of the
sector’s total, and capital from 31.0 percent to 33.0 percent. Nevertheless, no
medium-sized bank is currently regarded as a systemically important bank, despite
the growing market share.

Small Banks: At the end of June 2024, the combined assets and deposits of the 25
small banks 11 accounted for 23.3 percent and 22.7 percent, respectively, of the whole
banking sector – an annual increase of 0.8 percentage points each. Likewise, their
combined total capital share increased from 41.6 percent of the sector’s total capital
in 2023 to 42.8 percent at the end of June 2024. The growth of the small banks’
aggregate market share can be explained by their increasing number over the years
and the rapid initial expansion of the newly established banks. However, with an
individual share in assets, deposits, and loans, and bonds of less than two percent,
none of the small banks can be considered a systemically important bank.

Table 4: Banking Industry Market Shares, June 2024 versus June 2023 (percent)

Total Assets Total Loans & Total Deposits Total Capital

Bonds
Type of June June June June June June June June
bank 2023 2024 2023 2024 2023 2024 2023 2024
By size
class
Large 49.5 47.9 46.7 45.2 48.7 47.1 27.5 24.2
Medium 28.0 28.9 30.5 31.1 29.4 30.3 31.0 33.0
Small 22.5 23.3 22.9 23.7 21.9 22.7 41.6 42.8
By
ownership
Public 49.5 47.8 46.7 45.2 48.7 47.1 27.5 24.2
Private 50.5 52.2 53.4 54.8 51.3 52.9 72.6 75.8

Source: NBE Database and Off-site Reports

10
Awash Bank, Bank of Abyssinia, Cooperative Bank of Oromia, Dashen Bank, Hibret Bank.
11
Abay Bank, Addis International Bank, Ahadu Bank, Amhara Bank, Berhan Bank, Bunna Bank, Enat Bank, Gadaa
Bank, Global Bank, Goh Betoch Bank, Hijra Bank, Lion International Bank, Nib International Bank, Omo Bank,
Oromia Bank, Rammis Bank, Shabelle Bank, Sidama Bank, Siinqee Bank, Siket Bank, Tsedey Bank, Tsehay Bank,
Wegagen Bank, ZamZam Bank, Zemen Bank.
FINANCIAL STABILITY REPORT 23
NATIONAL BANK OF ETHIOPIA

Assessment of Systemic Risk Stemming from Industry Structure

As indicated above, CBE is a systemic bank in the Ethiopian banking system and can
therefore entail systemic risk. The CBE has withstood a number of recent negative
domestic and external shocks, including local conflicts and droughts/landslides,
global inflation, disruptions to the supply chain brought on by the war in Ukraine and
the Middle East, changes in the price of oil and other commodities, climate change
and other impactful developments.

The CBE has a high cushion of regulatory capacity as its capital adequacy ratio (CAR)
is significantly above NBE’s 8 percent minimum capital requirement, and its liquidity
position is also high, above the 15 percent minimum requirement. While CBE’s CAR
remains above the regulatory minima at all levels of risk stress, its liquidity position
could fall below the regulatory minimum in the (unlikely) event of a sudden withdrawal
by its 10 most important depositors (see Section 3.2.1.5).

Moreover, because the majority of the bank’s paid-up capital is a government-issued

promissory bond (Proclamation No. 994/2017 Government Bond) that has not yet
been fully paid for in cash, CBE’s capital position requires targeted policy and
regulatory attention in the event of unfavorable circumstances. CBE’s exposure to
government-guaranteed but nonperforming exposures to Liability and Asset
Management Company (LAMC) and Ethiopia Electric Power (EEP) are being replaced
with government bonds resulting in the removal of these items from CBE balance
sheet and restructuring of its balance sheet accordingly. NBE will be following up the
proper implementation of this in due course.

Box 4:
Commercial Bank of Ethiopia’s Resolution

Accounting for around 50 percent of Ethiopia’s banking industry in terms of market share
of its assets and deposit base, Commercial Bank of Ethiopia (CBE), with its wide
geographical coverage and presence, is systemically important and the longest serving
bank in the country. CBE has played a central role in Ethiopia’s economic growth and
development since its establishment. However, its past overexposure to projects run by
public sector organizations has put the bank under stress.

Cognizant of the need to address its problems and ensure a sustainable business model
that best supports economic growth and development, the Ethiopian government
embarked on a major reform program at CBE. To support its reform agenda, the
government is also working with the World Bank to effectively implement and realize
these necessary changes under the auspices of a financial sector strengthening project
(FSSP).
24 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

The FSSP, which is spearheaded by the Ministry of Finance and the National Bank of
Ethiopia (NBE), and financed by the World Bank, is designed to a large extent to ensure
the successful restructuring, recapitalization and reform of CBE. The restructuring aims to
reduce CBE’s exposure to nonperforming state-owned enterprise assets by transferring
the stock of loans owed by the Liability and Asset Management Company (LAMC) and
Ethiopian Electric Power (EEP) to the government. In addition, a subsequent recapitaliza-
tion exercise aims to increase CBE’s capital in line with its systemic importance in the
sector. Accordingly, the House of People’s Representatives approved a government-pro-
posed bill to issue bonds worth 900 billion birr to CBE. This was to ensure the assumption
of these state enterprises’ debts by the government and the injection of additional capital
to CBE. The transfer of the debts from LAMC and EEP to the government does not
change the public sector’s total exposure to debt, as this is not a new obligation. Instead,
it makes the debt the government’s responsibility rather than the two public enterprises’.

To support the implementation of this reform program, the World Bank is expected to
approve concessional financing worth US$700 million to further strengthen the banking
sector’s supervision framework and its regulations. The funds will also support the recapi-
talization of CBE and the various reform activities that each of the implementing agencies
(i.e., NBE, CBE and DBE) will undertake. Meanwhile, as part of the reform activities, CBE
will redefine its governance and operating model in a way that ensures its commercial
mandate, conduct its future operations in a prudent and sustainable manner, ensure com-
pliance with applicable NBE regulations (including on corporate governance and risk
management), implement recommendations of an asset quality review, and pursue
various cost optimization measures.

In short, the implementation of the CBE reforms is expected to ensure the bank’s
improved financial soundness and sustainability and further cement the contribution it
makes towards supporting private sector-led economic growth and development going
forward.

Overall, the risk stemming from the concentration of the industry’s structure has
continued to gradually decline in the reporting year, as the market share of the one
systemically important bank further decreased.

3.2.1.3 Credit Concentration

A. Credit Concentration by Economic Sector
As with the year before, manufacturing accounted for Ethiopian banks’ largest share
of loans and advances (23.0 percent) at the end of June 2024, followed by domestic
trade and services, with 20.1 percent (Table 5). However, both showed lower growth
than total banking loans. However, the largest changes in the composition of credit
over the year were around the decline in credit to the export sector – a drop by 1.6
percentage points, and almost stagnation in terms of loan value – and the increases
in loans to consumers (plus 1.3 percentage points) and the building and construction
FINANCIAL STABILITY REPORT 25
NATIONAL BANK OF ETHIOPIA

sector (plus 1.0 percentage points), which indicates a shift towards

domestically-oriented economic activities and away from exports.

Overall, as a result of the sectoral shifts, the concentration of the loan portfolio across
sectors – which had already been relatively diversified in the year to June 2023 –
decreased further during the reporting period.

Table 5: Banking Loans by Sector (billion birr)

June 2023 June 2024 2024 vs. 2023
Sector Amount Share (%) Amount Share (%) Change in Change in share
(billion birr) (billion birr) value (%) ( percentage points )
Agriculture 83.7 6.4 95.1 6.3 13.6 -0.1
Building & Construction 132.3 10.1 167.0 11.1 26.2 1.0
Manufacturing 304.6 23.2 345.3 23.0 13.4 -0.2
Import 99.3 7.6 122.1 8.1 23.0 0.5
Export 205.4 15.7 212.1 14.1 3.3 -1.6
Domestic Trade & Services 270.9 20.7 302.1 20.1 11.5 -0.6

Staff & Consumers 138.2 10.5 176.8 11.8 27.9 1.3

Other Business 76.5 5.8 80.5 5.3 5.2 -0.5
Total 1,311.0 100.0 1,500.9 100 14.5

Source: NBE Database

B. Credit Concentration by Borrowers

The banking sector’s loans and advances are relatively concentrated due to the past
practice of large-scale lending to major state enterprises and regional governments.
If including such large state-owned enterprises, the top 10 borrowers in the banking
industry held 14.7 percent of its total loans and advances at the end of June 2024, a
significantly lower share than a year earlier (23.5 percent). However, excluding
state-owned enterprises, concentration ratios are much lower, with the top 10 private
borrowers making up 3.5 percent of bank loans and advances. Large borrowers,
defined as those with credit exposure of above 10 million birr, constituted only 0.5
percent of the total, but they held almost three quarters (74.8 percent) of the entire
banking sector loans. This is a higher share than the year before. A significant number
of loans at the end of June 2024 was held by borrowers from urban areas.12

Looking ahead, as banks work to comply with the credit granting conditions in the
revised NBE directives, it is expected that credit concentration risk in the banking
sector will be gradually reduced. The relevant regulatory changes in this respect
include accurate mapping of connected borrowers and compliance with the
corresponding quantitative prudential limits stipulated in the Large Exposures
Directive. In addition, the changes involve the application of revised criteria to identify
related parties and their compliance with the corresponding quantitative prudential
limits as stipulated in the Related Party Transaction Directive (for more detail, see
Section 3.2.3 below).

12
Urban areas are those settlements with a population of 20,000 and above or regional and zonal capitals.
26 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

3.2.1.4 Soundness Indicators

The commercial banking industry in Ethiopia is considered sound and resilient based
on an assessment of these financial soundness indicators – capital adequacy ratio,
liquidity position, and non-performing loans (NPLs).

A. Asset Quality Indicators

As a result of low NPLs and adequate provisioning for them, the quality of assets in
the Ethiopian commercial banking industry was generally sound at the end of June
2024, despite indicators preforming slightly worse compared to a year earlier.

The ratio of NPLs to gross loans increased slightly in the year to the end of June
2024 to 3.9 percent, from 3.6 percent for the same period in 2023 (Figure 7a), still
substantially below the regulatory maximum of 5 percent. Nevertheless, in a few
banks NPLs rose above this minimum. As a result, NBE is working with them to
address the underlying challenges.

Furthermore, provisioning decreased from 132.5 percent of NPLs at the end of June
2023 to 104.1 percent at year later (Figure 7b), though still fully covering all reported
NPLs. Given the reported level of NPLs, banks have provided adequate provisions to
cover their impaired loans.

It should be noted that the revised directive on asset classification and provisioning,
issued by NBE in June 2024, will lead to improved and more prudent measures in
terms of asset classification and the maintenance of the required provisioning (see
Section 3.2.3 below). This is expected to further improve the banking system’s
classification and NPL reporting.

Figure 7: Banks’ Non-Performing Loans to Gross Loans and Non-Performing Loans

Provisioning, 2020-2024 (percent)

a) NPLs ratio b) NPL provisioning

6.0 150
132.5
122.9
5.0

4.0 100
93.2
3.9 3.9 104.1
3.0
3.5 3.6
3.0
70.0
2.0 50

1.0

0 0
2020 2021 2022 2023 2024 2020 2021 2022 2023 2024
NPLs Ratio Regulatory NPL Limit Provisions to NPLS Ratio

Source: NBE Database

FINANCIAL STABILITY REPORT 27
NATIONAL BANK OF ETHIOPIA

B. Capital Adequacy Indicators

The regulatory capital to risk-weighted assets ratio for the banking sector slightly
increased from 14.7 percent at the end of June 2023 to 15.4 percent in June 2024,
comparing favorably with the regulatory minimum of 8 percent. Meanwhile, the
leverage ratio (capital to total assets) continued its steady positive trend, increasing
from 8.1 percent to 8.4 percent (Figure 8).

Figure 8: Banking Industry Capital Adequacy Indicators, 2020-2024 (percent)

Capital adequacy ratio Capital to total assets ratio

18.4 10 8.4
20%
16.3 8.0 8.1
15.2 14.7 15.2 8 7.3 7.7
15%
6
10%
4

5%
2

0%
0 June
2020 2021 2022 2023 2024 June June June June 2024
2020 2021 2022 2023
CAR Threshold

Source: NBE Database

C. Liquidity Indicators
Although the liquid assets to deposits ratio of the banking sector decreased from
24.2 percent at the end of June 2023 to 22.4 percent a year later, it still compared
favorably with the regulatory minimum of 15 percent (Figure 9).

During the same period, the ratio of loans to deposits remained stable, dropping by
only 0.4 percentage points to 60.2 percent, while the ratio of loans and bonds to
deposits increased slightly to 87.9 percent, from 87.4 percent in the previous year
(Table 3 above). These ratios are still very high, though, and suggest that nearly all
deposits are held up by borrowers, leaving limited room for large and unexpected
deposit withdrawals. Nevertheless, the high ratios result in relatively low liquid assets,
which could lead to a liquidity problem under unfavorable circumstances.

The decrease in the liquidity ratio may have been caused by increased lending,
particularly to the building and construction, import, and households’ sectors (see
Table 5 above). Although the increased lending is in line with the general policy to
encourage lending to the economy’s key sectors, NBE continues to caution going
above a loan to deposit ratio of 85 percent to ensure the sector remains resilient to
adverse liquidity shocks.
28 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

Figure 9: Banking Industry Liquidity Indicators (percent)

30.0
27.0
25.0 24.2
22.4
20.6
20.0 17.95
Ratio (%)

15.0

10.0

5.0 Liquidity
Ratio
0 Threshold
2019 2020 2021 2022 2023

Source: NBE Database

A high concentration of deposits and the difference in maturities between deposits and
loans may create a liquidity risk in the banking sector despite the existing
above-the-minimum liquidity ratio: At the end of June 2024, 58.5 percent of the total
banking sector deposits was held by only 0.4 percent of the sector’s depositors.
However, similar to credit concentration, state-owned enterprises are among the largest
depositors, so the concentration of private sector deposits is considerably smaller. The
liquid assets of banks only incorporated a small share of high-quality liquid assets (cash).
As a result, some banks were facing real-time transaction-level liquidity shortages. This
is analyzed further as part of the liquidity risk stress test in Section 3.2.1.5.

D. Profitability Indicators
The total income of the banking sector was 361.4 billion birr for the year to the end of
June 2024, up from 297.5 billion birr in the previous year (Figure 10). Expenses also
grew with the expansion of activities, and the total number of bank employees rose by
2.9 percent to 192,843 people. Net income before tax increased by 18.4 percent to 57.9
billion birr at end of June 2024, against 48.9 billion birr a year earlier.

Figure 10: Banking Industry Income, Expenses and Net Income Before Tax, 2020-2024
400.0
361.4
350.0
297.5
300.0 274.0
250.0
220.0
247.0
Billion

200.0
168.9
150.0 157.9
133.6 122.8
100
73.6 Total Expense
102.5 61.8 62.9
50 41.0 Total Income
28.8
- Net Income
Before Tax
2020 2021 2022 2023 2024
Source: NBE Database
FINANCIAL STABILITY REPORT 29
NATIONAL BANK OF ETHIOPIA

The profitability of the banking industry decreased slightly but is considered sufficient.
Return on equity and return on assets were 24.6 percent and 2.0 percent at the end of
June 2024 respectively, compared to 25.7 percent and 2.0 percent a year earlier
(Figure 11). Return on equity was marginally lower than that of the previous year primarily
because of an increase in bank provisioning.

Figure 11: Banking Industry's Profitability Indicators, 2020-2024

35.0

30.0 26.7

25.0 21.6
32.6 25.7 24.6
20.0

15.0

10.0

2.4 2.0 2.0

5.0 1.7 1.9

0 2020 2021 2022 2023 2024

Return on Equity Return on Asset

Source: NBE Database

3.2.1.5 Risk Stress Tests

A. Credit Risk Stress Test
NBE performed a banking sector credit risk stress test at end of June 2024 for the 12
months ahead under baseline, moderate and severe scenarios. The scenarios were
calibrated according to domestic and international shocks that could negatively
impact the recovery and, eventually, the credit risk of the banking industry. 13

The baseline scenario (pre-shock) assumes that the NPL ratio will not change from
the current 3.9 percent level, anticipating that the economy will grow according to the
IMF’s forecast, with international and domestic conditions improving, and the country
free of droughts and conflicts. The moderate scenario assumes that NPLs in the
banking industry will increase to 10.0 percent. In principle, this could happen as a
result of deteriorating domestic and/or external circumstances, such as drought and
heightened conflict or increasing foreign currency shortages. The severe scenario
assumes that NPLs will increase to 30.0 percent.

13
A preliminary assessment had established that capital to total risk-weighted assets ratio (regulatory CAR) of all
banks was higher than the 8.0 percent minimum statutory requirement. Thus, all banks were included in the stress
test.
30 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

The credit risk stress test results (Table 6) provide an assessment of banks’ capital
erosion following assets quality impairment under the moderate and severe
scenarios. The results indicate that all banks have sufficient capital to withstand a
moderate shock. Under the severe scenario, the aggregate CAR of the banking
sector would still remain well above the regulatory minimum of 8.0 percent, at 12.3
percent. However, four banks would fail the stress test due to an increase in NPLs
under this scenario, requiring additional capital equal to 6.5 billion birr (4.8 percent
of risk-weighted assets). This is a marked improvement compared to the situation a
year earlier, when 12 banks would have fallen below the regulatory minimum CAR.
The systemic bank – and the majority of MFIs that converted to banks, in the small
banks class – have more capital and would not require capital injections under the
severe scenario. Therefore, there is no systemic credit risk for the banking sector as a
whole, even under the severe scenario.

Table 6: Results of Credit Risk Stress Test (increase in non-performing loans)

Baseline Scenario Moderate Severe
(Pre-shock)* Scenario Scenario
Assumed level of NPL (%) 3.9 10.0 30.0
Impact of NPL shock on CAR
Resulting Regulatory Capital Ratio (%) 15.4 15.3 12.3
Number of banks below minimum regulatory CAR - - 4

*based on Data as of June 2024

Source: Developed from NBE Database and Off-site Reports

B. Liquidity Risk Stress Test

The liquidity risk stress test considers the aggregate impact on the banking sector’s
liquidity if the top 10 depositors in each bank suddenly withdraw all their money. This
is an extreme scenario because, as mentioned in section 3.2.1.3, state-owned
enterprises are among the largest depositors and would be highly unlikely to fully
withdraw deposits simultaneously.

The results of the stress test (Table 7) suggest that the Ethiopian commercial banking
sector is highly sensitive to liquidity risk from sudden withdrawals by a few big
depositors. The banking industry had also become more sensitive by the end of June
2024 than the previous year. Exposed to the same shock, 18 banks would have failed to
meet the minimum liquidity requirements of June 2023; this has now increased to 20.
FINANCIAL STABILITY REPORT 31
NATIONAL BANK OF ETHIOPIA

Table 7: Result of Liquidity Risk Stress Test (withdrawal of top 10 depositors)

Stress Test Based on June 2023 Stress Test Based on June 2024
Data Data
Baseline Top 10 Baseline Top 10
Scenario (Pre- Depositors Scenario (Pre- Depositors
Shock) Withdrawal Shock) Withdrawal
Scenario Scenario
Size of the Shock Br 524.7 billion Withdrawal of Br Br 559.6 billion Withdrawal of Br
liquid assets 288.8 billion liquid assets 359.9 billion
Impact of shock on
liquidity
Resulting Regulatory 24.0 13.0 22.4 9.4
Liquidity Ratio (%)
Number of Banks - 18 - 20
Below minimum
Regulatory Liquidity
Ratio
Source: Developed from NBE Database and Off-site Reports

At the same time, as already noted in Section 3.2.1.3, the revised NBE directives that
aim to reduce credit concentration in the banking sector will also gradually reduce
liquidity risk. Measures to enhance accurate mapping of large borrowers and
compliance with the corresponding quantitative limits stipulated in the Large
Exposures Directive will reduce banks’ exposure to large depositors (see Section 3.2.3
below). So too will the application of revised criteria on the identification of related
parties and compliance with the corresponding quantitative limits as stipulated in the
Related Party Transaction Directive.

C. Foreign Exchange Stress Test

Following the reform of the foreign exchange regime undertaken in late July 2024,
the value of the birr against the US dollar decreased by more than 100 percent, from
about 57 birr per dollar to about 117 birr per dollar. With few exceptions, the banking
system weathered this shock well. As a further depreciation of the birr is possible
under adverse conditions, NBE undertook a foreign exchange rate stress test. This
analyses the effects of a further increase in the exchange rate by 10 percent, 20
percent, and 30 percent. Considering the birr exchange rate has already adjusted
following the introduction of the foreign exchange regime reform, a further
depreciation during the year ahead under the latter two scenarios must be considered
as unlikely.

The results of the stress test indicate the banking industry CAR will remain above the
minimum regulatory requirement of 8.0 percent under all scenarios. Although one
bank would fail to meet the minimum CAR requirement under the 30.0 percent
increase scenario (Table 8).
32 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

Table 8: Result of Foreign Exchange Stress Test, September 2024

Baseline Moderate Severe Highly Severe

Scenario (Pre- Scenario Scenario Scenario
Shock)
Size of the Shock: Assumed - 10.0 20.0 30.0
Increase in Foreign Exchange
Rate
Impact of shock on CAR
Post-shock Regulatory Capital 17.9 15.4 13.0 10.5
Ratio (%)
Number of Banks Below - - - 1
Minimum Regulatory CAR
Source: Developed from NBE Database

3.2.2 Development Finance Institution

The total assets 14
of the DBE grew by 15.5 percent from the previous year to 182.2
billion birr at end of June 2024. The increase was largely because of the growth in
bonds by 131.3 percent. Total regulatory capital increased by 6.5 percent from the
previous year’s 31.0 billion birr to 33.0 billion birr (see Annex A). Deposit liabilities
decreased significantly by 56.3 percent, the regulatory capital ratio fell to 23.9
percent, and the ratio of provisions to NPLs also fell by 45.0 percent by the end of
June 2024, compared with the same period a year earlier. The ratio of NPLs to total
loans decreased, from 7.1 percent to 6.5 percent (Figure 12). Profitability also
marginally decreased, with a return on assets of 2.5 percent, and a return on capital
of 13.3 percent (Figure 13).

Figure 12: DBE Balance Sheet-Based Soundness Indicators, Figure 13: DBE Profitability Indicators,
June 2023 and June 2024 (percent) June 2023 and June 2024 (percent)
140 18.0

117.5 16.0
120 15.2
14.0 13.3
100
87.9 12.0

80 72.6 10.0

8.0
60
6.0
37.7
40
30.4 4.0
23.9 3.1 2.5
20 2.0
7.1 6.5
0 0

NPLs to Provisions Capital-to-risk Liquid Assets Return on Assets Return on capital

Total Loans to NPLs Weighted Asset to Total Loans (RoA) (RoC)

June 2023 June 2024 June 2023 June 2024

Source: Annex A

Overall, the vulnerability of DBE to risks decreased substantially during the review period.

14
All data used in this analysis are provisional (not audited).
FINANCIAL STABILITY REPORT 33
NATIONAL BANK OF ETHIOPIA

3.2.3 Regulatory Enhancements in the Banking Sector

In June 2024, NBE issued five revised directives on banking business, as informed by
international best practice, mainly embodied in the Basel Framework, as well as in
response to developments in the banking industry. The directives are also meant to
address specific corporate governance and risk management weaknesses existing in
some banks. Such weaknesses involve poor objectivity and insufficient competence
at board level, including a lack of independent directors and the under-estimation of
credit risk concentration due to the poor identification of connected borrowers. In
addition, there is an under-estimation of insider lending due to the exclusion of
relationship through ownership: for example, the relationship between state-owned
banks and enterprises. Lastly, there is inadequate prudential provisioning for loan
losses, leading to the overstatement of profits, due to the improper grading of
exposures.

To ensure that operations of affected banks are not disrupted in a bid to comply with
the revised directives, NBE has allowed transitional arrangements for each of the five
directives as appropriate.

Overall, the revised directives are expected to lead to a significant improvement in the
safety and soundness of the banking sector and the banks’ intermediary role in the
economy, enhanced financial stability, and ultimately provide a boost to economic
prosperity in Ethiopia

3.2.3.1 Directives on Corporate Governance

In a bid to strengthen its supervisory framework, NBE revised directives on bank
corporate governance and requirements for persons with significant influence in a
bank.
1. Bank Corporate Governance Directive. To enhance corporate objectivity,
accountability and transparency, banks are now required to have independent
directors. The process to nominate and elect directors has also been streamlined to
make it more efficient. Lastly, in recognition of inclusion and diversity, a bank board
of directors should have at least two women directors.

2. Requirements for Persons with Significant Influence in a Bank Directive. To

ensure the banking sector’s integrity as well as its stable and long-term institutional
success, NBE tightened the fitness and propriety requirements for banks’ directors
and management. The revised requirements include limiting the number of
directorships; ensuring senior bankers make the necessary time commitment, are
independence of mind, and manage conflict of interest; and seeking higher
qualifications and relevant experience for the chief executive officer of a bank and
directors.
34 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

3.2.3.2 Directives on Credit Risk Management

As part of guidance to banks in the management of credit risk, concentration risk, and
conflict of interest, NBE revised directives on large exposures, asset classification and
provisioning; and related party transactions.

1. Large Exposures Directive. To reduce vulnerabilities due to concentrated

lending, banks are required to observe limits when lending to an individual borrower
or group of connected borrowers, as well as maintaining internal mechanisms to
monitor such concentration risk. In this directive, NBE clarified the criteria for
identifying connected borrowers, and stipulated exempted categories of borrowers,
to ensure that concentration risk is accurately determined.

2. Asset Classification and Provisioning Directive. To ensure that credit risk

arising from loans and other assets is accurately measured, and provided for in a
timely manner consistent with accepted international accounting principles and
regulatory standards, NBE tightened the conditions for how banks grade loans and
treat and report restructured loans and NPLs. The directive also sets maximum limits
for loan iteration and the treatment of NPLs, including the maintenance of provisions
for off-balance sheet exposures.

3. Related Party Transactions Directive. Related parties are persons

connected with the bank either through control and/or employment. This directive
limits the sum of all exposures directly or indirectly held by a bank to any single related
party, and forbids a bank to conduct any transactions with a related party on
preferential terms compared to conditions normally applied to unrelated parties.

3.2.3.3 Other banking business regulatory and supervisory reforms

In addition to monitoring the implementation of the above-mentioned five directives,
NBE is currently working on other reforms aimed at strengthening its banking
regulatory and supervision processes to align them with international best practice
and ensure their continuous improvement.

3.2.4 Summary Assessment of Risks for Financial System

Stability Emanating from the Banking Sector
In the review period, the banking sector remained stable and resilient against the
backdrop of strong domestic economic growth, effective monetary and financial
policies, but also conflicts and droughts in some parts of the country. Overall, the
outlook for 2024/2025 is also positive. Underpinned by sufficient capital and
profitability, the sector will remain stable and resilient, which is also confirmed by the
FINANCIAL STABILITY REPORT 35
NATIONAL BANK OF ETHIOPIA

latest banking sector risk stress test results. However, there are some downside risks
associated with potential domestic and external shocks.

A. Credit Risk
The banking industry’s credit risk remained moderate during the review period
but is expected to increase in 2024/2025. Credit risk could increase because of
conflicts in some parts of the country. In addition, a deterioration in the external sector
– the implication of the global monetary policy on domestic interest rates, the
exchange rate and capital flows; and the impact of the wars in Ukraine and the Middle
East on trade and other transactions – could also increase credit risk. This risk
appears to be accentuated at face value by the high levels of credit concentration.
However, it is lower in practice when the role of state-owned enterprises in the
banking system’s loan portfolio is considered. Also, NBE is closely monitoring this
situation through supervisory tools contained in the revised directives on large
exposures and related party transactions, issued in June 2024.

Since loans, advances, and bonds constitute the lion’s share of bank assets, credit risk
remains one of the most important and inherent risks that banks need to effectively
manage. Therefore, it is imperative to follow prudent, principle-based lending and
financing practices that are in line with a bank’s risk strategy and appetite, as well as
applicable legal requirements. In this regard, the asset quality of Ethiopia’s banking
system as a whole and of most banks is deemed satisfactory as their NPL ratio is
below NBE’s 5.0 percent maximum. However, in light of the aforementioned systemic
risks and the less than satisfactory performance of some banks, NBE is closely
monitoring financial institutions with relatively higher NPLs to reduce this category so
they can maintain acceptable exposure to these loans and credit portfolios. NBE will
also closely monitor banks’ compliance with its recently issued directive on asset
classification and provisioning to ensure, among other things, they cease using
collateral as a factor to determine whether a loan is non-performing or not. They must
also take into consideration forward-looking and qualitative factors, including
“unlikely pay” conditions while determining non-performing status, the
reclassification of loans from non-performing to performing, banks’ compliance to
the maximum-allowed loan iterations/restructuring as provided in the directive, the
reporting of restructured loans, the reconciliation of differences between accounting
and regulatory provisions, and the charging of provisions for off-balance sheet
exposures.

B. Liquidity Risk
Liquidity risk to the banking industry remained moderate and stable during the
review period, although exposure to sudden withdrawals by large depositors is
high and has increased, based on a severe shock scenario assumption. The
36 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

liquidity risk is expected to increase in the short and medium terms. The banking
industry is expected to maintain a robust liquidity position and resilience to short-term
liquidity shocks. However, downside risks persist, including a failure to meet weekly
liquidity requirements, real-time gross settlement system (RTGS) payment
requirements, asset and liability mismatches and funding gaps at the short-term
maturity buckets, and high deposit concentrations. Although the latter are lower when
considering deposits by the private sector only, they may suggest the need for tighter
regulatory standards on deposit concentration risks.

As banks mobilize short-term deposits and invest same in long-term assets, they
normally face an asset-liability time mismatch on their books. To this end, it is critical
for banks to manage their liquidity risk and maintain adequate liquidity that will enable
them to proactively and effectively meet their obligations at all times. Most banks in
Ethiopia comply with NBE’s 15 percent minimum liquidity ratio requirement and have
a proven track record of meeting payment obligations in the RTGS. NBE is closely
monitoring banks with liquidity challenges and weaker liquidity risk management
practices. It also engages with such banks to ensure that corrective and remedial
actions for addressing the observed liquidity issues are implemented to prevent any
negative spillovers to the overall financial system.

Going forward, NBE will take the necessary measures to ensure that banks implement
sound and comprehensive liquidity management supported by adequate liquidity risk
management tools. These include actively engaging in the interbank money market,
utilizing the NBE short-term liquidity facilities, and improving their internal liquidity
management governance, stress tests, contingency planning, and cash flow
projections.

C. Market and Foreign Exchange Rate Risk

Market risk is moderate but increasing. In a rising domestic interest rate
environment, banks’ funding costs may increase since deposit liabilities are at variable
rates, while a large amount of assets – corporate bonds held by CBE and DBE, and
treasury bonds held by private banks – are at fixed rate. As a result, banks’
profitability may deteriorate.

The banking system has well coped with the birr’s depreciation following the foreign
exchange regime reform of July 2024. The results of the foreign exchange stress test
furthermore indicate that the banking industry CAR will remain above the minimum
regulatory requirement of 8 percent under all scenarios, showing an overall high
degree of resilience, although the systemic bank has a relatively higher degree of
exposure.
FINANCIAL STABILITY REPORT 37
NATIONAL BANK OF ETHIOPIA

D. Operational Risk
There is significant operational risk in the Ethiopian commercial banking
industry, and it is expected to rise further in the short to medium term. Incidents
of social engineering, insider threats and third-party risks are on the rise. The gross
cost of bank fraud and forgeries increased to 1.3 billion birr from 1.0 billion birr a year
ago. These cases occurred at 28 banks (almost every bank), mainly through the use
of fake cash notes and cheques, embezzlement, the issuance of unauthorized bank
guarantees, withdrawals using stolen ATM cards, and false calls or texts.

Commercial banks are introducing new technology-based products and services that
enhance efficiency and financial inclusion but entail significant operational risks.
Moreover, an increasing number of banks are applying to introduce digital micro
credit and savings services that are provided through partnerships with third parties.
As a consequence, incidences of fraud and embezzlement could increase. In that
regard, policies for banks and effective strategies for measuring and mitigating
operational risks need to put in place. In addition, this would pose an elevated cyber
risk to the banking system more than ever before.

3.3 MICROFINANCE AND CAPITAL GOODS

FINANCE BUSINESS SECTORS
This section focuses on the stability and vulnerability to risks of the MFI and the
capital goods finance business sectors. Given their share of its monetary value, these
sectors are not expected to pose a significant risk to Ethiopia’s overall financial
system, but institutions have a big social impact for a number of beneficiaries. They
totaled 829,078 loan clients and 5,586,302 savers at end of the review period.

At the end of June 2024, all MFIs together accounted for 1.8 percent of the financial
sector’s total assets, and all capital goods finance companies for 0.2 percent (see
Table 3 in section 3.1 above). Therefore, the analysis in this section is limited, as it is
focused on financial stability when compared to that of the banking sector. More
details are provided in this report’s annexes.

At the end of June 2024, 56 microfinance institutions 15

(with a total of 1,138
branches) and six capital goods finance companies 16
(with a total of 56 branches)
were operating in Ethiopia.

15
The analysis for the microfinance sector excludes data for the microfinance institutions that have been
transformed into banks from the end of June 2019 to the end of June 2023 (Amhara Credit and Saving Institution,
Oromia Credit and Saving Institution, Omo MFI, Somali MFI, Addis Credit and Saving Institution, and Sidama MFI).
16
Waliya Capital Goods Finance Business S.C, Oromia Capital Goods Finance Business S.C, Addis Capital Goods
Finance Business S.C, Debub Capital Goods Finance S.C, Kaza Capital Goods Finance Business S.C, and Ethio
Lease Ethiopia Goods Finance Business S.C.
38 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

3.3.1 Microfinance Sector

The microfinance sector’s balance sheet grew strongly and remained sound and
stable in the year to the end of June 2024. Total assets increased by 21.6 percent
(from 49.4 billion birr to 60.1 billion birr) and total deposits by 29.2 percent (from 24.3
billion birr to 31.4 billion birr), respectively. Liquid assets and net loans also increased
by 28.4 percent and 26.9 percent, respectively, while NPLs increased much more
moderately, at 6.3 percent (Table 9). Capital increased by 4.7 percent, and a further
increase is anticipated because each microfinance institution is required to reach a
minimum of 75 million birr within seven years.17 Also, 54 microfinance institutions with
new injections of capital were under formation at the end of June 2024.

Table 9: Major Balance Sheet Items of the Ethiopian Microfinance Institution Sector,
2020-2024 (billion birr)

Change
June June June June June 2024 vs.
Major items 2020 2021 2022 2023 2024 2023 (%)
A Assets
Total liquid assets 5.5 6.7 7.8 9.5 12.1 28.4
Gross loans 17.4 20.2 25.3 31.5 39.7 26.0
Provisions 1.0 1.3 1.4 1.1 1.1 1.1
Net loans 16.4 18.9 23.9 30.4 38.6 26.9
Gross NPLs (PAR>90 days) 1.1 2.0 2.2 1.3 1.4 6.3
Total assets 24.4 28.7 36.9 49.4 60.1 21.6
B Liability and Capital
Total deposits 14.4 16.9 18.9 24.3 31.4 29.2
Borrowings 2.3 3.3 8.0 10.3 11.0 6.6
Total capital 4.5 5.1 7.2 10.9 11.4 4.7

Source: NBE Database

Figure 14: Capital Adequacy and Debt Equity Ratios in the Microfinance Sector,
2020-2024 (percent)

27.0 26.3 500.0

444.2 467.0
26.0
414.7 427.2 400.0
25.0

24.0 24.5 354.0 300.0

DER (%)
CAR (%)

23.0 22.6 23.5 200.0

22.0
22.9 100.0
21.0

20,0 0.0

JUN-20 JUN-21 JUN-22 JUN-23 JUN-24

CAR Debt to Equity (DER)

Source: NBE Database

17
This applies to MFIs established in 2023 and later; already existing MFIs must reach the 75 million birr by the end
of January 2028; see NBE Directive No. MFI/36/2023.
FINANCIAL STABILITY REPORT 39
NATIONAL BANK OF ETHIOPIA

Loans remain the biggest component of total assets, accounting for 66 percent of
them at the end of June 2024. Since the end of COVID-19, asset quality has
significantly improved, indicating a recovery from the pandemic period. In the year
to the end of June 2024, the NPL ratio decreased further to 3.6 percent from 4.2
percent a year earlier, meeting NBE’s requirement of less than 5 percent for the
second time in five years (Figure 15).This again indicates a low risk level for the
sector. The sector maintained strong bad debt coverage, as reflected by a
provisions-to-NPLs ratio of 76.7 percent at the end of June 2024, slightly lower than
the 80.6 percent recorded a year earlier.

Figure 15: Asset Quality Ratios of the Microfinance Sector, 2020-2024 (percent)

12.0 100.0
87.6
9.9 80.6
10.0 8.6 76.7 80.0

Provision to NPLs
8.0
NPLs Ratio

64.6 64.1 60.0

6.0 6.6
40.0
4.0
4.2
3.6 20.0
2.0

0 0.0
JUN-20 JUN-21 JUN-22 JUN-23 JUN-24

NPLs Ratio Provision to NPLs

Source: NBE Database

The sectoral distribution of MFI loans shifted in the year to June 2024 (Figure 16):
Loans to agriculture decreased from 21.6 percent of total microfinance loans in the
year to June 2023 to 18.0 percent in the year to June 2024, whereas loans to the
trade sector increased from 39.4 percent to 42.6 percent for the same period,
indicating a strong shift away from rural area/agriculture loans.

With regards to NPLs, loans to agriculture accounted for the highest share, 38.2
percent, which may have contributed to MFIs’ decisions to shift away from
agricultural loans (see Figure 28 in Annex B).
40 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

Figure 16: Distribution of Microfinance Loans by Sector, June 2023 and June 2024 (percent)
a) June 2023 b) June 2024
5.5 5.3
13 18.0
21.6 16.8

13.5

11
7.0

6.2 42.6
39.4
Agriculture Trade Service
Manufacturing Construction Others

Source: NBE Database, see, Annex B

The MFI sector’s profitability continued in an overall positive trend in the year to the
end of June 2024: total income increased by 39.4 percent to 8.9 billion birr while
total expenses were only recorded at 13.4 percent to 5.9 billion birr. This resulted in a
net income of 3.0 billion birr, 148.5 percent higher than a year earlier (see Table 19 in
Annex B). Notably, the sector registered the highest profitability ratio ever for the
measures, return on assets (RoA) and return on equity (RoE), recording 5.6 percent
and 27.6 percent respectively at the end of June 2024 (Figure 17).

Considering individual MFIs, although some generated higher profits than small
banks or insurance companies in Ethiopia, others are still loss makers/weak
institutions even after several years of operation. This situation is mainly attributable to
the absence of digitized services, which would increase efficiency and reduce costs,
and a lack of strategic leadership and weak governance practices. This may require
policy measures aimed at consolidating the weak MFIs to create stronger institutions.

Figure 17: Major Earning Ratios of the Microfinance Sector, 2020-2024 (percent)

30.0 18.8 27.6 20.0

25.0
18.3
13.9 15.0
20.0 12.4 16.7
RoE and RoA

OSSR

15.0 13.4 13.7 10.0

11.0 5.6
10.0 14.3
4.4
5.0
5.0 2.5 2.7
2.0
0.0 0.0
JUN-20 JUN-21 JUN-22 JUN-23 JUN-24

Return on equity (RoE) Return on assets (RoA) Operational self sufficiency (OSSR)

Source: NBE Database

 FINANCIAL STABILITY REPORT 41
NATIONAL BANK OF ETHIOPIA

Finally, although the microfinance sector has met its liquidity requirements, it
remains highly interconnected with and reliant on commercial banks: 87 percent of
the sector’s liquid assets are held at domestic banks. The liquidity ratio remained
relatively stable at 38.7 percent, well above NBE’s 20.0 percent minimum
requirement (Figure 18). However, the loan-to-deposit ratio of 126.4 percent
indicates – despite reductions for two years in a row from 134.1 percent at the end
of June 2022 – that the sector’s financing in addition to deposits is still heavily
dependent on borrowing from domestic banks and international organizations, such
as the International Fund for Agricultural Development’s Rural Financial
Intermediation Program.

Figure 18: Microfinance Sector Liquidity Ratio Indicators, 2020-2024 (percent)

140.0
41.5
41.3
41.0
135.5
40.5 134.1
129.6

Loan to deposit ratio

40.0 130.0
39.5 126.4
Liquidity Ratio

39.5

39.0 125.0
38.3 38.9
38.5 44.2
119.5 120.0
38.0 120.6
37.5
115.0
37.0

36.5 110.0

JUN-20 JUN-21 JUN-22 JUN-23 JUN-24

Liquidity ratio Loan to deposit ratio

Source: NBE Database

3.3.2 Capital Goods Finance Business Sector

The capital goods finance business sector’s loans grew by 35.3 percent to over 3.7
billion 18 birr in the year to June 2024, from nearly 2.8 billion birr a year earlier (Table
10). Total assets also increased by 18.4 percent to 6.4 billion birr, but total liquid
assets declined by 45 percent to 416 million birr. NPLs more than doubled in the year
to the end of June 2024, also implying an increase in the NPL ratio to 7.5 percent
for the same period, up from 5.1 percent a year earlier. This is 50 percent higher than
the regulatory maximum of 5 percent, reflecting a high credit risk.

18
This excludes lease financing provided by DBE.
42 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

Table 10: Major Balance Sheet Items of the Capital Goods Finance Sector, 2020-2024 (million birr)
Change
June June June June June 2024 vs.
No Major items 2020 2021 2022 2023 2024 2023 (%)
A Assets
1 Liquid assets 775.5 972.3 891.4 756.7 416.0 (45.0)
2 Loans 981.8 1,550.0 2,173.1 2,767.4 3,745.0 35.3
3 Gross NPLs 84.8 82.3 60.2 140.1 282.0 101.3

4 Total assets 3,906.7 4,563.5 4,936.5 5,438.3 6,438.0 18.4

Gross NPLs/Loans (%) 8.6 5.3 2.9 5.1 7.5 2.4
B Liability and Capital
5 Borrowings 1,611.8 2,145.0 2,470.5 3,167.2 4,143.0 30.8
6 Capital 2,218.8 2,300.3 2,349.7 2,582.3 2,245.0 (13.1)

Source: NBE Database

Capital goods finance companies do not accept deposits and rely on banks for a
significant portion of their financing. This exposes the sector to the risk of contagion
from adverse shocks in banking. Moreover, a lack of diversified sources for stable
financing and a high dependence on borrowing hinders the sector’s operational
expansion.

The sectoral concentration of loans granted by capital goods finance companies was
high and it increased in the year to the end of June 2024 – the share of loans to the
manufacturing sector grew from 63.4 percent to 68 percent (Figure 19) due to the
nature of the business. This implies a high credit concentration risk from exposure to
the manufacturing sector.

Figure 19: Capital Goods Finance by Client Sector, June 2023 and June 2024 (percent)

a) June 2023 b) June 2024

1.8 2.4 7.0
12.3 13.5
12.6

9.9 9.1

68.0
63.4

Agriculture Service Others

Manufacturing Construction

Source: NBE Database, see Annex C

FINANCIAL STABILITY REPORT 43
NATIONAL BANK OF ETHIOPIA

In terms of profitability, the capital goods finance sector has incurred losses in three
out of the last five years, with the highest loss experienced during the period under
review, mainly due to one private leasing company under liquidation proceedings.
The return on capital and return on assets measurement stood at near zero in
previous years, but they were clearly negative in the year to the end of June 2024, at
-15.3 percent and -5.3 percent respectively (Figure 20). The number of leasing
companies and their branches has remained the same over the last five years. This
indicates there is a structural problem and a high risk for the sustainability of
operations, which calls for corresponding policy measures to help the sector return
to profitability.

Figure 20: Major Profitability Indicators of the Capital Goods Finance Sector, 2020-2024
(percent)
5.0

0.6 1.1
-0.02 -0.3
-
0.3 -0.04 0.5
-0.6
-5.3
(5.0)

(10.0)

(15.0)
-15.3
(20.0)

JUN-20 JUN-21 JUN-22 JUN-23 JUN-24

Return on Equity Return on Asset

Source: NBE Database, see Annex C

With respect to financial soundness, the sector is considered secure on the basis of
capital adequacy. Although it is facing limited risk, it is increasing mainly due to
earnings and asset quality (Figure 21). At the end of June 2024, the capital-to-risk
weighted asset ratio was 41.9 percent, the lowest since 2020, while the
debt-to-equity ratio reached 184.5 percent, the highest since 2020 – but still far
below the threshold debt-to-equity ratio of 7:1, which signals that the sector is still
significantly below its maximum borrowing capacity.
Figure 21: Capital Goods Companies Soundness Indicators, 2020-2024 (percent)
200 10.0
8.6 185
CAR and DER Ratio

8.0
150
NPL Ratio

123 6.0
105
100 93
5.3 4.0
68 73 55
61
50 52 42
2.9 5.1 2.0

2.8
- -
JUN-20 JUN-21 JUN-22 JUN-23 JUN-24
CAR Debt to equity ratio NPLs
Source: NBE Database, see Annex C
44 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

3.3.3 Summary Assessment of Risks for Financial

System Stability Emanating from the Microfinance
and Capital Goods Finance Sectors
Neither the microfinance sector nor the capital goods finance sector poses a risk to the
Ethiopian financial system’s stability. This is not only a result of the relatively limited size of
these two sectors in the system, but also because they are assessed as sound overall.

The overall risk to the microfinance sector is considered low and stable: The capital
adequacy, NPL, and liquidity ratios are all well within NBE’s parameters and have
improved over the review period. There is also remarkable growth in sector-wide
profitability, although with large variances across individual MFIs, which may call for policy
measures aimed at consolidating the sector. Close links to banking also make the
microfinance sector vulnerable to potential spillovers from the sector in terms of liquidity
and borrowing. This risk may need to be addressed through appropriate policy
measures.The capital goods finance business sector’s risk is rated as moderate but
increasing. This is because capital risk is assessed as low, and systemic risk is rated as
moderate. However, earnings, asset quality, and concentration risks are rated as high,
and may require regulatory measures to reduce the risk levels.

3.4 INSURANCE SECTOR

As of June 30th, 2024, the number of insurance companies operating in the Ethiopian
market stood at 18, of which one is state owned. The sector consists of 14 composite
insurance companies transacting both long-term and general insurance businesses, and
four general insurance companies trading only non-life/short-term insurances. The
companies carry different licenses based on the main lines of insurance business they
conduct. So far, no company has exclusively conducted a long-term business. Moreover,
one locally incorporated reinsurance company (Ethio-Re) is operating as a local reinsurer.
Besides, 2,894 insurance agents, 62 insurance brokers, 117 loss assessors and three
surveyors operate in the sector. Africa-Re and PTA-Re (ZEP-RE), two overseas
reinsurance companies with considerable presence in the sector, have local contact
offices in Ethiopia. The companies accept Ethiopian birr as their trading currency. In
addition, five insurance companies are authorized to provide non-conventional,
Sharia-compliant insurance (takaful) as “window operators19”; while one full-fledged
takaful operator (Amana Takaful) is under formation.

NBE issued a directive on motor insurance’s minimum premium rate to try and bring the
lingering practice of premium undercutting in the industry to an end. It also has drafted
amendments on the Requirements for Persons with Significant Influence in an Insurer,
Financial Reporting, and Licensing of Insurance Broker Directive. In addition, NBE carries out
on-site inspections and off-site surveillance of insurance companies and monitors the
implementation of supervisory concerns to strengthen the resilience of insurance companies
19
Window operators are conventional insurance service providers that also provide sharia compliant services
through a dedicated window operation.
FINANCIAL STABILITY REPORT 45
NATIONAL BANK OF ETHIOPIA

3.4.1 Performace of the Sector

The total assets of the sector stood at 65.6 billion birr at end of June 2024, up 32.0
percent from the previous year (Table 12). The general insurance business accounted for
93.2 percent of the sector’s total assets during the period under review. Sector assets
were offset by liabilities of 43.2 billion birr, up 29.3 percent from the previous year (33.4
billion birr). This resulted in net assets of 22.4 billion birr, up 37.4 percent from the
previous year (16.3 billion birr).

The 32 percent growth of total assets was financed by an increase in liabilities (by 9.8
billion birr, or 61.6 percent of the total asset increase) and equity (by 6.1 billion birr, or 38.4
percent of the total asset increase). The increase in capital is mainly attributable to
operational results, which are partly due to an increase in paid-up capital. This is
attributable to NBE’s directive that requires insurers to increase their paid-up capital to
0.4 billion birr by the end of June 2027.

Table 11 : Financial Performance of the Insurance Sector (billion birr)

Item June June June June June Change
2020 2021 2022 2023 2024 2023-2024 (%)
Assets
Total Assets 29 39.1 40.8 49.7 65.6 32.0%
Total Investment 15 19 22 28.9 36.4 26.0%
Equity Investment 2.8 3.6 4.9 5.9 7.3 23.7%
Bank Deposits 10.3 13.3 14.4 19.4 24.5 26.3%
Current Assets 20.3 29.1 28.3 35.1 46.4 32.2%

Liability and Capital

Total Liability 19.4 28 27.4 33.4 43.2 29.3%
Total Equity 9.5 11.1 13.4 16.3 22.4 37.4%
Current Liability 18.9 27.3 26.7 32.5 42.1 29.4%
Paid-up Capital 5.0 5.9 7.1 9.0 11.7 30.0%
Net profit/loss Before tax 2.3 2.7 3.3 4.1 6.9 68.3%

Source: NBE Database

Stronger underwriting resulted in improved sector profitability, which is considered

sound. Insurers generated a net income before tax of 6.5 billion birr and 0.4 billion
birr from the general and long-term insurance businesses, respectively. This
corresponds to a return on equity of 31.5 percent for general and 21.9 percent for
long-term classes of business. However, inflation led to losses on insurers’ fixed
income holdings of bank deposits. The five-year average return on investment in the
general insurance class of business was 9.6 percent.

The insurance sector registered a record gross premium of 28.7 billion birr at the end
of June 2024, 23.7 percent higher than a year earlier and above the inflation rate of
19.9 percent. The general class of business accounted for 92.0 percent (26.4 billion
birr) of the sector’s gross written premium, while the long-term business and takaful
46 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

insurance accounted for the remaining 8.0 percent (Figure 29 in Annex D). In terms of
products, 54.7 percent of the general insurance business is motor related, and 87.7
percent of the long-term business is term and permanent health insurance, which are
technically short-term policies of one year.
Net earned premium and net claims incurred for the general class of business was 16.9
billion birr and 8.6 billion birr respectively at the end of June 2024. The respective
growth of the net earned premium and net claims incurred was 44.5 percent and 26
percent. Underwriting expense for the general business was 5 billion birr, a 30.7
percent increase from the previous period of 3.7 billion birr. The resulting claims ratio
and expense ratios were 50.9 percent and 29.6 percent, respectively (Figure 22). The
performance of the general insurance business, as measured by the combined ratio of
the loss and expense ratios, stood at 80.5 percent at the end of June 2024, better than
the 91 percent recorded in the previous year and the best in five years. The minimum
motor insurance premium rate that was issued by NBE in August 2023 might have
partly contributed to the improved performance in this regard.

Figure 22: General Insurance Business Operational Performance

100% 93.0 %
87.6 % 88.7 % 91.1 %
80.5 %
80%

61.8 %
57 % 56 % 58 %
60% 50.9 %

40% 31.2 % 30 % 33 % 33 %
29.6 %

20%

0%

JUN-20 JUN-21 JUN-22 JUN-23 JUN-24

Combined Ratio Claims Ratio Expense Ratio

Source: NBE Database

The sector solvency, equity to liability, and liquidity positions have improved in 2024
(Figure 23). Equity as a percentage of liability stood at 63.2 percent, which is well
above the 20 percent minimum prudential requirement. The industry maintained a
solvency ratio (statutory capital compared to required capital) of 316 percent, showing
a 73 percentage-point increment from the last reporting period. In addition, the sector
is liquid with a liquidity ratio – this measures the percentage of an insurers’ liability
against the available liquid assets – that stood at 92.6 percent in June 2024. This was
a marginal improvement over last year’s result of 94.6 percent. 20
There were no
significant changes in the investment portfolio composition. Even though general
insurers are required to invest a minimum of 60 percent of their total assets in liquid
assets, mainly in bank deposits and government securities, the actual result in this
regard is 48 percent, which signifies a material shortfall.

20
Liquidity is measured as current liability divided by current assets. The maximum standard is 105 percent. The
lower the ratio, the lower the liquidity risk. A decreasing ratio is therefore an indication of a decreasing liquidity risk.
FINANCIAL STABILITY REPORT 47
NATIONAL BANK OF ETHIOPIA

Figure 23: Key Soundness Indicators in the General Business, 2020–2024

400%
350% 328 % 334 %
316.0
300%
243%
250% 203 %
200%
150%
95.8 % 95.8 % 96.8% 94.6% 92.4
100%
54.3 % 53.8% 48.3%
38.9%
50% 63.2
0%

JUN-20 JUN-21 JUN-22 JUN-23 JUN-24

Liquidity Solvency Equity-to-liability

Source: NBE Database

3.4.2 Summary Assessment of Risks for Financial

System Stability Emanating from the
Insurance Sector
The main risks faced by the insurance sector are due to changes in macroeconomic
policies and risks related to insurance, operations, markets, and the sector’s
concentration of players. Pressing concerns are market penetration, specifically in
the life class of the business; a shortage of insurance professionals, such as
actuaries; and inadequate IT infrastructure in the industry and regulatory body.

Operational Risk: A lack of technical expertise in insurance is a real constraint. Most

insurance companies’ operations remain underdeveloped and unautomated. There
are hurdles to overcome to implement IFRS 1721 due to the unavailability of data and
a lower level of automation for the industry’s core business. The implications of this
will be seen in the financial reporting period for the year to the end of June 2024.

Insurance Risk: This refers to the risk that inadequate or inappropriate underwriting,
product design, pricing and claims settlement expose an insurer to financial losses
and a consequent inability to meet its liabilities. Ethiopia’s insurance sector is known
for its stiff price competition in all classes of business. Insufficient premiums could
leave industry players unable to meet their obligations from claims.

Concentration Risk: The government-owned insurance corporation accounts for 32

percent of the market share. In addition, Ethiopian Reinsurance Company receives 25
percent of treaty cession and 5 percent of each policy insurers underwrite. Moreover,
55 percent of the general class of business is motor insurance, which needs to be
diversified going forward.

21
IFRS 17 is the newest IFRS standard for insurance contracts and replaced IFRS 4 on January 1st, 2022. It states
which insurance contracts items should by on the balance and the profit and loss account of an insurance
company, how to measure these items, and how to present and disclose this information.
48 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

Market Risk: The investment portfolio of insurers is restricted to bank deposits by

law. Such provisions could inhibit insurers from earning higher returns that could
enable the further development of the sector.

Despite the potential financial stability headwinds, the sector outlook remains
positive in terms of growth, stability and resilience. Technology development and
automation are necessary to tackle operational risks. The sector also needs to build
its capacity to expand the pool of insurance professionals. Furthermore, focus
should also be given to the implementation of risk-based capital and IFRS 17.

3.5 HIGHLIGHTS ON SAVINGS AND CREDIT

COOPERATIVES AND PENSION FUNDS
Savings and Credit Cooperatives
Ethiopia has a large network of savings and credit cooperatives (SACCOs)22 – over
21,000 in total – which play an important role in financial inclusion, especially in the
underserved rural areas. Nevertheless, SACCOs have limited capacity to increase
their market share and become truly competitive financial institutions due to
limitations in size, skills, products, use of technology, and operational models. From
the point of view of the financial system’s stability, SACCOs pose no systemic risk due
to the limited size of the sector.

Pension Funds
Pension funds in Ethiopia are administered by two agencies, the Public Employees
Social Security Administration Agency as per provisions of Proclamation
No.1267/2022, and the Private Organization Employees Social Security Fund
Administration Agency as per provisions of Proclamation No. 1268/2022.

22
Cooperative societies in Ethiopia are established and administered in accordance with Proclamation No. 985/2016.
4.
FINANCIAL SYSTEM
INFRASTRUCTURE
DEVELOPMENT
AND RISKS
50 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

4. FINANCIAL SYSTEM
INFRASTRUCTURE
DEVELOPMENT AND RISKS
This chapter discusses developments and risks for the stability of Ethiopia’s financial
system related to its infrastructure. The infrastructure comprises currency
management, the payment and settlement system, credit market infrastructure, and
financial inclusion and consumer protection.

4.1 NATIONAL PAYMENT SYSTEMS DEVELOPMENT

Payment systems in Ethiopia were radically modernized in 2011 after NBE launched
the Ethiopian Automated Transfer System (EATS), an interbank payment system
comprising both the real time gross settlement (RTGS) system 23
and the automated
clearing house (ACH). 24
NBE owns and manages the EATS, which provides facilities
for the final settlement of payments between financial institutions and clearing and
netting services for bulk payments. Before 2011, all payments in the country, including
bank-to-bank transfers, were made through the exchange of letters; as a result, a
single interbank transfer took days to settle.

The financial sector’s dependency on the RTGS infrastructure has increased over
time, and the EATS is the only financial market infrastructure designated as a
systematically important payment system in Ethiopia. To ensure its safety, efficiency,
and reliability, NBE has established a robust regulatory framework. (Box 5) Due to
effective oversight and administration, the EATS operated at 99.9 percent reliability
during the year to June 2024.

Box 5:
Payment System Regulatory Framework and Developments
The digital payments ecosystem has seen significant growth over the last few years.
As of June 2024, there are over 198 million digital accounts, including more than 110
million mobile money accounts and 47 million mobile banking accounts. Additionally,
more than 35 million debit cards are in circulation. These advancements are
promoting financial inclusion for many Ethiopians. On average, the digital payments
ecosystem processes over 7.5 million transactions daily, with a total transaction value
exceeding 26.5 billion birr. These figures highlight the country’s increasing reliance on
digital platforms and the impact of technology on its financial landscape.

23
The RTGS is an electronic form of funds transfer for high value or sensitive payments, where money transfer takes
places from one participant to another in real-time and on an individual basis. All participants maintain a payment and
settlement account in RTGS for final settlement of the transactions between them.
24
ACH is a system where low value large volume transactions (bulk transactions) are cleared and a net settlement
instruction is produced. It is an electronic clearing house for cheque, Credit Transfer (CT) and Direct Debit (DD)
instruments. In ACH, settlement does not happen; rather, it produces net settlement instructions and sends them to
RTGS for final settlement. Each instrument, which is cleared in the ACH, requires a separate rule and arrangement.
FINANCIAL STABILITY REPORT 51
NATIONAL BANK OF ETHIOPIA

In the coming years, the country's digital payments landscape is expected to undergo
a significant transformation, and further enhancing the growth and accessibility of this
type of technology. The shift will position the payments infrastructure as a key enabler
of financial inclusion and economic growth. Several strategic initiatives are driving this
progress. They include:

• Building secure and efficient digital public infrastructure. By integrating the

instant payments infrastructure that is currently implemented by the national
switch, with the national ID system (Fayda), NBE aims to create a more secure,
efficient, inclusive, and interoperable digital payments landscape that promotes
financial inclusion and economic development.
• Expanding the instant payments system’s services. These services will allow con-
sumers to conduct transactions in real-time, which is essential for fostering a
dynamic economy.
• Creating a more enabling regulatory framework. This framework will ensure the
digital payments industry operates smoothly, securely, and in compliance with
regulations. Learning from the implementation of the National Digital Payment
Strategy (NDPS) 1.0, the National Bank of Ethiopia (NBE) is set to launch NDPS
2.0 in early 2025. This new strategy aims to establish a robust digital payments
ecosystem that provides a strong foundation for the country’s financial system
and economic growth.

The newly introduced QR code standard for digital payments in Ethiopia is also set to
simplify transaction processes for merchants across the country. This standard will
enhance security and make payments more straightforward for customers and mer-
chants, thereby expanding access to digital payments platforms for both retail and
wholesale merchants.

The swift advance of digital payments systems in Ethiopia, complemented by strategic

initiatives proposed by NBE, will significantly improve access to diverse financial
services for the population. The expansion of a secure and interoperable digital
payments ecosystem not only provides individuals and businesses with a greater
range of options for making payments, but it also fosters financial inclusion, economic
growth, and a growing confidence among the public.

4.1.1 Payment Systems Performance

4.1.1.1. Ethiopian Automated Transfer System
At the end of June 2024, 35 financial institutions participated in EATS, of which three
were MFIs. No major EATS interruption was reported in the year under review. The
system processed more than 3.5 million transactions (down by 8.5 percent from the
previous year) with a value of more than 4 trillion birr (an annual decrease of 17
percent). The decline in both volume and value of RTGS transactions is mainly due to
the rise of other interoperable digital payment channels, such as mobile banking.
52 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

Table 12: Ethiopian Automated Transport System Performance, 2020-2024

(transactions: number and value)

Description June June June June June

2020 2021 2022 2023 2024

Total number of RTGS transactions 720,666 1,734,409 2,739,763 3,901,069 3,575,343

Total Value of RTGS transactions 1,814.1 2,598.2 3,754.8 4,863.2 4,020.6
(in billion Birr)
Total number of cheque transactions 886,456 461,237 414,869 355,566 245,709
Total Value of cheque transactions 54.0 48.9 52.1 43.9 40.3
(in billion Birr)

Source: NBE Database

4.1.1.2. Digital Financial Services (DFS)

Following a recent NBE directive, domestic and foreign non-bank payment service
providers are allowed to issue electronic money instruments and/or obtain a payment
system operator’s license to provide payment and remittance services.

As of June 30th, 2024, 11 non-bank entities were licensed under the new regulatory
framework. This includes one national switch, six licensed payment systems
operators, and four licensed payment instrument issuers. Table 13 shows the
development of digital financial services’ (DFS) access points since 2020.

Table 13: Digital Financial Services Access Points (channels and instruments),
2020-2024 (number)

Year Ending ATM Point of Debit Mobile Internet Mobile Mobile

Terminals Sale (PoS) Cards Banking Banking Money Money
Terminals (million) accounts accounts accounts Agents
(million) (million) (million)
June 2020 6,259 9,780 16.0 9.1 1.5 8.0 22,725
June 2021 6,343 9,208 21.2 11.9 2.3 15.3 35,964
June 2022 6,902 11,760 30.7 16.3 4.4 43.3 156,876
June 2023 7,858 12,016 38.4 27.3 6.8 68.7 233,036
June 2024 10,551 14,030 45.5 39.6 12.2 107.5 415,084
Change 2024 vs
2023 (%) 34.2% 16.7% 18.5% 39.6% 81.3% 56.6% 78.1%

Source: NBE Database

Important developments include the following:

The number of ATMs throughout the country grew by 34.2 percent to 10,551 at the
end of June 2024 over the previous year. The number of PoS terminals deployed
within financial institutions and at merchant locations also increased by 16.7 percent
to 14,030 at the end of June 2024 from a year earlier. This is due to the
commercialization of some non-bank PoS operators during the year. The number of
FINANCIAL STABILITY REPORT 53
NATIONAL BANK OF ETHIOPIA

PoS devices at merchant locations is expected to increase further in the coming years
as many non-bank payment service providers enter the market.
The number of debit cards in circulation rose by 18.5 percent to 45.5 million by the
end of June 2024 from the previous year.

Mobile banking is the most widely used digital payment channel in Ethiopia. This is
due to the services provided by many commercial banks, with 18 banks currently
offering mobile banking at different scales. Consequently, the number of registered
accounts increased by 45 percent to 39.6 million by the end in June 2024 from a
year earlier. The number of mobile money/wallet users also increased by 56.6
percent from June 2023 to 107.5 million by the end of June 2024. The rapid growth
was largely attributed to the expansion of Telebirr mobile money services and the
operationalization of M-Pesa by Safaricom Ethiopia PLC and Kacha Digital Financial
Services S.C.
Internet banking in Ethiopia is still in its infancy relatively speaking, with 12.2 million
users by the end of June 2024, but it is growing rapidly. The number of mobile
money agents increased by 78.1 percent at the end of June 2024 compared to the
previous year, reaching 415,084 agents. The increase is mainly attributed to the
expansion of Telebirr in the market.

Digital payments are growing at an exponential rate (Table 14). In the year to June
30th, 2024, payments worth more than 9.6 trillion birr were processed digitally, an
increase of more than 50 percent compared to the previous year. This growth is the
result of the successful implementation of the National Digital Payment Strategy and
NBE’s reform activities.

Table 14: Transactions Processed Through Digital Financial Services, 2020-2024

(number of transactions in million and value in billion birr)

ATM PoS Mobile Banking Internet Agent Banking Mobile Money Aggregate DFS
Year
Banking
ending
Volume Value Volume Value Volume Value Volume Value Volume Value Volume Value Volume Value

June 2020 153.19 142.07 1.36 4.85 11.62 68.38 0.53 22.55 4.24 1.40 4.24 2.96 175 242.20

June 2021 225.60 236.09 2.95 7.44 39.56 326.18 2.41 26.59 23.00 8.94 7.25 5.94 301 611.18

June 2022 171.07 197.54 2.34 62.18 88.01 163.57 1.09 129.57 34.39 23.01 48.50 24.36 345 1,600.24

June 2023 356.38 478.32 6.60 40.84 474.92 3,442.58 5.80 358.14 101.95 76.54 298.83 380.30 1,244 4,776.72

June 2024 437.98 728.51 10.15 24.24 1,114.81 6,717.58 15.12 749.05 130.35 446.00 764.88 1,028.59 2,473 9,693.97

Source: NBE Database

54 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

4.1.2 Interoperability
Interoperability is key to a stable, successful, and inclusive digital payments
ecosystem. The vast majority of countries worldwide have recognized the importance
of a local switch that enables interoperability and has optimal infrastructure for banks
to connect to and allows real-time payments 24/7.

Through its national switch, Ethswitch, Ethiopia has successfully implemented a

comprehensive digital payments framework, achieving full-scale interoperability for
various payment methods, including person-to-person (P2P) payments, ATM cash
withdrawals, PoS transactions, and the use of quick response (QR) codes for seamless
financial exchanges. As a result, the number and value of transactions have grown
exponentially (Table 15).

The smooth and efficient functioning of the national switch is vital for the growth of
the digital payment landscape in the country. Recognizing this importance, NBE has
provided extensive support to enhance the capabilities of the national switch. This
support is not only aimed at ensuring that the system operates at its maximum
capacity, it also focuses on developing the necessary infrastructure to facilitate the
widespread adoption and integration of digital payments solutions throughout
Ethiopia.

Table 15: Interoperability Performance Through ATM, Point of Sale and Person-to-Person Transactions,
2020-2024
June 2020 June 2021 June 2022 June 2024 June 2024
ATM transactions
Number 15,044,699 24,166,034 39,894,113 71,433,041 94,030,684
Value (billion birr) 12.78 26.56 44.9 89.7 119.24
POS transactions
Number 1,107 109,506 361,317 970,434 2,345,444
Value (billion birr) 1.02 0.2 0.3 2.6 5.51
P2P transactions
Number 0 29,881 2,067,710 14,140,881 55,204,745
Value (billion birr) 0 0.2 19.9 113.3 283.01

Source: NBE Database

4.1.3 Summary Assessment of Payment System

Risks and Outlook
Payment systems risk includes potential losses to entities or individuals, such as a
bank’s customers or third parties, that send or receive payments. Accordingly, it is
important for a bank’s risk management practices and internal controls to evolve and
keep up with changes in the bank’s payment systems, products, and services. Like
any other system globally, developments in the country’s payment system are
exposed to several risks, including operational, liquidity, compliance, reputation,
systemic, fraud, and settlement.
FINANCIAL STABILITY REPORT 55
NATIONAL BANK OF ETHIOPIA

Liquidity risk refers to the potential for participants to lack sufficient funds to meet
their settlement obligations. This leads to disruptions in the smooth functioning of the
system and settlement failure, which reduces the efficiency and reliability of the
payment system, affecting peer participants and their clients. Short-term liquidity
problems were seen on the system by a few participants during the period. The
recently established Standing Lending Facility should serve as a safety net for
participants during times of unexpected liquidity shortages in the period ahead.

Compliance risk refers to the potential for adverse consequences arising from a
failure to comply with relevant laws, regulations, and industry standards, leading to
increased exposure to other risks such as operational, credit, and liquidity risks. No
major failures to comply with NBE regulatory requirements were seen from the
payment service providers during the period, as NBE has established robust
regulatory frameworks to reduce the likelihood of non-compliance, and it maintains a
strong reputation for adherence to legal and regulatory standards.
Reputation Risk refers to the potential for adverse consequences arising from the
public’s negative perception of, or damage to, the payment system's reputation. This
can occur when a payment system fails to perform as expected, leading to loss of trust
among participants, the public and customers. In the review period no issues were
seen on the system that led to a loss of trust among its participants and customers.
Regular monitoring and oversight of the payments system can mitigate the potential
risks.
Settlement Risk refers to the potential for adverse consequences arising from the
failure of one party to fulfill its settlement obligations, leading to financial losses or
disruptions in the settlement process. Continuous monitoring of the system, prudent
liquidity management, establishing collateral requirements for participants with
intraday credit exposure, and ensuring the finality and irrevocability of settlement can
enhance the resilience of its processes, reduce the likelihood of settlement risk, and
contribute to the system’s overall stability and reliability.

Systemic Risk refers to the potential for widespread disruptions across the financial
system that can occur due to the failure of a major payments system participant or a
systemic failure in the payments’ infrastructure. Such disruptions can have cascading
effects, impact on multiple participants and undermine the system’s overall financial
stability. To mitigate systemic risks, it is crucial to implement a variety of measures.
These include enhanced monitoring and stress testing of the payments system, and
the establishment of strong contingency plans and robust coordination among
regulatory authorities, financial institutions, and payment system operators.
Fraud Risk involves the potential for fraudulent activities that can compromise the
integrity of payment systems and lead to financial losses for participants. Fraudulent
activities can include unauthorized transactions, identity theft, and the manipulation of
56 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

payment data. Effective fraud risk management requires the implementation of

advanced fraud detection systems, regular monitoring for suspicious activities, and
strong authentication protocols. Additionally, educating users about security best
practices and ensuring compliance with industry standards can further reduce the risk
of fraud within the payments system.
Cyber Security Risk: Globally, attacks on information and communications
technology systems (cyber-attacks) are increasing, targeting mostly the financial
sector. It poses significant threats to the integrity, confidentiality, and availability of
financial transactions, leading to data breaches, the disruptions of services, fraudulent
transactions and reputational damage. No cyber security threats were reported to
NBE from participants of EATS and DFS providers during the period. Strong security
controls (like multifactor authentication), vendor security assessments, establishing
redundant and backup systems to improve reliability, and collaboration with law
enforcement bodies can enhance its cyber security posture and better protect against
potential threats.

Overall, the national payments system is expected to remain safe, efficient, and
trusted among users in 2025. The performance of EATS and DFS products is
expected to show continuous growth both in value and volume terms, and they will
continue to evolve and contribute to the country’s overall financial stability.

4.2 CREDIT MARKET INFRASTRUCTURE

Ethiopia’s Credit Reference Bureau (initially called the Credit Information Centre) was
first established in 2004. Its main purpose was to lessen the difficulty of getting
adequate and timely credit information that enables the satisfactory assessment of
banking sector borrowers’ credit worthiness. This will improve the loan portfolio and
the stability of the financial system.

Initially, credit information was manually made available to lending banks, which were
mandated to grant loans and advances of 200,000 birr or more, only after first
obtaining information from the Credit Information Centre. The system was upgraded
and expanded in 2012 and again in 2019, incorporating MFIs and capital goods
financing companies as subscribers, data providers, and users.

In summary, the expansion in the credit reporting system’s (CRS) coverage has
contributed substantially to ensuring an adequate loan portfolio in the banking and
MFI industries. Going forward, the modernization of the CRS – including the upgrade
of IT infrastructure, the modernization and streamlining of databases, and updating
the service-level agreements – will ensure that CRS’s operational risk remains stable.
FINANCIAL STABILITY REPORT 57
NATIONAL BANK OF ETHIOPIA

Table 16: Credit Market Infrastructure Data

June June June June June
2020 2021 2022 202 3 2024
Number of subscribers to the CRS 19 19 23 28 30
Total number of borrowers listed in the CRS 131,167 170,456 208,090 263,790 336,549
Individual borrowers 120,728 157,541 193,542 247,317 316,928
Non-Individual borrowers 10,439 12,915 14548 16,473 19,621
Total number of credit accounts in the CRS 312,037 388,329 456,439 553,445 669,711

Source: NBE Credit Reference Bureau

4.3 FINANCIAL INCLUSION AND CONSUMER

PROTECTION
Financial inclusion is an essential prerequisite for sustainable development, and it
plays a key role in stabilizing the country’s financial system, job creation, digital
transformation, and Ethiopia’s continued economic growth. It allows financial
institutions to access diversified funding sources and improve their ability to manage
their liquidity risks. Expanding financial access and use in severely underserved areas
is a national priority and NBE’s long-standing target. In response to these policy
objectives, the National Financial Inclusion Strategy II was developed and is now in
the process of being implemented. In support of this, a comprehensive regional
financial inclusion framework has been developed and launched during the year for
nine regional states. The framework is mainly prepared to aggressively expand
financial access to underserved areas, narrow the regional financial inclusion disparity
and accommodate the regional context.

Over the past five years, the number of transaction accounts 25

has increased at an
average annual rate of 31 percent, reaching 272 million at the end of June 2024. Of
these, the total number of interest-free deposit accounts accounted for 23.7 million.
Accordingly, the number of transaction accounts per 100 adults reached 477 at the
end of June 2024, compared to 365 a year before and the National Finance Inclusion
Strategy II’s (NFIS-II) headline target of 286 (Figure 24). The number of traditional and
digital financial access points has expanded significantly. Their combined number
increased by 64.4 percent from 271,203 at the end of June 2023 to 445,856 a year
later. In terms of access points per capita, 782 financial access points served
100,000 adults during 2024, compared with 493 access points per 100,000 adults
in 2023.

25
This includes regular deposit accounts and mobile money wallets of commercial banks and other payment
instrument issuers.
58 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

Figure 24: Financial Access Points and Usage, 2020- 2024

900
782
800
700
600
500 493 477
345
400
365
300
166 221 301
200 132 123 189
100 79 126
20 34
0

2020 2021 2022 2023 2024

Mobile money account Transaction account Financial access points
per 100 adults per 100 adults per 100,000 adults
Source: NBE Database

Furthermore, the total number of credit accounts in the financial sector increased
from 6.4 million at the end of June 2023 to 10.5 million at the end of June 2024 –
a growth rate of 64.3 percent (Figure 25). During the year, there were a total of 4.1
million new digital credit users. As a result, the total number of credit accounts per
100 adults increased to over 18 at the end of June 2024 against 11.6 at the end of
June 2023 and far above the NFIS-II’s headline target of 12.8.
Figure 25: Number and Density of Credit Accounts, 2020-2024

20 18.4

15
11.6
11 10.2 10.5
8.5
10
6.4
5.6
5.4
4.7
5

0
2020 2021 2022 2023 2024
Number of credit accounts in Million Number of credit accounts per 100 adults

Source: NBE Database

Financial consumer protection is another important intervention area for NBE, which
aims to enhance the trust and confidence of the general public by ensuring
transparency, fairness, and consumer rights. Accordingly, NBE issued the relevant
Financial Consumer Protection Directive and established a directorate dedicated to
the supervision of the market, dispute resolution, and ensuring financial consumer
rights are fully protected, and market confidence is maintained. During the year, a
total of 3,345 financial consumer complaints related to transaction failure,
unauthorized transactions, data misuse, and fraud were received by financial
institutions. Of these, 48 percent are related to transaction failures. The financial
institutions resolved 90 percent of the complaints reported during the year.
FINANCIAL STABILITY REPORT 59
NATIONAL BANK OF ETHIOPIA

ANNEX
A. SELECTED FINANCIAL DATA FOR THE
COMMERCIAL BANKS
Table 17: Commercial Banks Loans and Advances by Sector (In millions of birr) As of June 2024

S/N Economic Sector Amount % share

95,080.22
1 Agriculture 6.33
345,343.58
2 Manufacturing 23.01
261,669.43
3 Domestic Trade 17.43
334,208.74
4 International Trade 22.27
212,097.35
4.1 Export 14.13
122,111.39
4.2 Import 8.14
5 42,433.80
Hotel & Tourism 2.83
6 166,931.82
Buliding & Construction 11.12
7 641.52
Mines, Power & water 0.04
8 4,706.55
Financial Institutions 0.31
9 40,400.81
Transport & Communication 2.69
10 6,891.09
Health & Education 0.46
11 176,757.22
Consumer and staff loans 11.78
12 25,842.40
Other Sectors 1.72
Total 1,500,907.21 100.00

Source: NBE Database

60 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

Table 18: Consolidated Balance Sheet of Commercial Banks In Millions of Birr

%
Share
Jun-23 Mar-24 Jun-24 % Change
Assets of Total
Assets
A B C D E= (C-B)/B F=(C-A)/A
CASH ON HAND (2.1+2.2) 45,372.71 51,856.91 53,635.37 1.64 3.43 18.21
Domestic banks deposits (3.2.1+3.2.2) 49,176.44 54,442.25 47,913.06 1.46 -11.99 -2.57
Deposits with NBE(sum 3.1.1-3.1.4) 224,871.53 194,429.42 215,639.41 6.58 10.91 -4.11
Foreign banks deposits(3.3.1+3.3.2) 62,888.05 60,611.43 81,370.25 2.48 34.25 29.39
INVESTMENTS (4.1+4.2) 795,445.64 828,304.34 874,017.91 26.67 5.52 9.88
Securities (sum 4.2.1.1 - 4.2.1.5) 642,771.53 680,395.54 693,130.69 21.15 1.87 7.83
Treasury bills 142,336.75 132,963.35 161,001.57 4.91 21.09 13.11
DBE Bonds 21,291.56 65,188.76 65,970.70 2.01 1.2 209.84
NBE bills 17,393.40 13,113.78 17,364.48 0.53 32.41 -0.17
Government Bonds 78,637.58 78,473.01 86,516.78 2.64 10.25 10.02
Corporate Bonds 523,235.31 520,723.22 520,723.22 15.89 0 -0.48
Equity participation (4.2.2.1 + 4.2.2.2) 9,724.39 14,538.97 15,295.21 0.47 5.2 57.29
Loans and Bonds 1,953,180.92 2,156,811.24 2,194,038.31 66.95 1.73 12.33
Total Loans & Advances
1,310,409.39 1,476,415.70 1,500,907.62 45.8 1.66 14.54
(5.1.1+5.1.2+5.1.3)
Provisions for loans and advances
62,949.02 68,754.96 59,990.27 1.83 -12.75 -4.7
(5.2.1+5.2.2)
LOANS AND ADVANCES (NET) (5.1-5.2) 1,247,460.36 1,407,660.74 1,440,917.34 43.97 2.36 15.51
OTHER FINANCIAL ASSETS (Net)
314,697.94 418,580.07 433,713.56 13.23 3.62 37.82
[(sum 6.1-6.4) -(6.5)]
Suspense accounts 8,815.36 11,542.91 18,899.22 0.58 63.73 114.39
FIXED ASSETS (Net)
68,092.38 83,795.33 87,222.10 2.66 4.09 28.09
(8.1– 8.2)
SUPPLIES STOCK ACCOUNT 6,619.65 9,066.50 9,008.96 0.27 -0.63 36.09
OTHER NON-FINANCIAL ASSETS 25,948.89 28,194.26 27,752.62 0.85 -1.57 6.95
INTANGIBLE ASSET(Net)
5,295.04 5,554.22 6,099.06 0.19 9.81 15.18
[(11.1+11.2)-(11.3)]
Total assets 2,845,868.64 3,142,495.47 3,277,289.64 100 4.29 15.16

Liabilities 2,567,918.54 2,834,743.32 2,937,191.91 89.62 3.61 14.38

Deposits 2,162,188.90 2,392,021.80 2,494,718.46 76.12 4.29 15.38
Demand/current deposits
679,893.95 743,034.58 813,298.42 24.82 9.46 19.62
(sum 14.1.1-14.1.14)
Savings deposits
1,370,109.29 1,497,506.40 1,524,318.95 46.51 1.79 11.26
(sum 14.2.1-14.2.7)
Time/fixed deposits
112,185.66 151,480.82 157,101.09 4.79 3.71 40.04
(sum 14.3.1-14.3.7)
Local borrowings (sum 15.1.1-15.1.3) 124,255.01 120,312.41 118,931.53 3.63 -1.15 -4.28
Foreign borrowings(sum 15.2.1-15.2.3) 0 1,167.39 1,177.03 0.04 0.83
Borrowings from NBE 119,415.69 114,631.01 113,508.41 3.46 -0.98 -4.95
DEBT SECURITIES ISSUED 0 0 0 0
State dividend payable 87.14 235.9 120.83 0 -48.78 38.66
SUNDRY CREDITORS 40,769.01 106,208.01 95,114.20 2.9 -10.45 133.3
Provision for taxation & other 4,437.20 17,387.13 28,431.02 0.87 63.52 540.74
OTHER ACCOUNTS (sum 20.1-20.3) 236,181.29 197,410.68 198,698.83 6.06 0.65 -15.87
Capital & Reserves A/C 220,839.02 262,930.21 270,882.97 8.27 3.02 22.66
Paid up capital 165,289.60 192,993.47 197,298.79 6.02 2.23 19.37
Shares premium 397.53 459.21 774.76 0.02 68.72 94.89
Legal reserves 44,322.63 56,723.76 56,728.49 1.73 0.01 27.99
General reserves 6,123.85 8,611.22 9,255.06 0.28 7.48 51.13
Retained Earnings 4,705.42 4,142.55 6,825.86 0.21 64.77 45.06
Provisional profit/loss A/C 57,111.06 44,821.94 69,214.75 2.11 54.42 21.19
Total liabilities & capitals 2,845,868.62 3,142,495.47 3,277,289.63 100 4.29 15.16

Source: NBE Database

FINANCIAL STABILITY REPORT 61
NATIONAL BANK OF ETHIOPIA

B. SELECTED FINANCIAL DATA FOR THE

DEVELOPMENT BANK OF ETHIOPIA
Table 19: Development Bank of Ethiopia’s Key Balance Sheet Items/Ratios, June 2023-2024 (billion birr)

Items June 2023 June 2024 % Change

Total Assets 157.8 182.2 15.5
Treasury Bills 31.1 0 -100.0
Total Bonds (Excluding T-Bills) 23 53.2 131.3
Total Liquid Assets 63.6 34.4 -45.9
Gross Loans and Advances 72.4 92.2 27.3
Non-Performing Loans 5.1 6 17.6
Provisions for Loan Loss 5.6 4.2 -25.0
Total Deposits 1.6 0.7 -56.3
Borrowings 108.8 41.8 -61.6
Total Capital 31 33 6.5
Ratios (percent) Change (percentage points)
NPLs to Total Loans 7.1 6.5 -0.6
Provisions to NPLs 117.5 72.6 -44.9
Capital-to-Risk Weighted Asset 30.4 23.9 -6.5
Net worth to Risk weighted Assets 38.2 29 -9.2
Liquid Assets to Total Deposits 4015 5049 1034
Liquid Assets to total loans 87.9 37.7 -50.2
Source: DBE

Figure 26: DBE Major Balance Sheet Items, June 2022-2023 (billion Birr)

2023 - June 2024 - June

Source: DBE
62 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

Figure 27: DBE Major Balance Sheet Items, June 2022-2023 (billion Birr)

2023 - June 2024 - June

Source: DBE

C. SELECTED FINANCIAL DATA FOR THE

MICROFINANCE SECTOR
Table 20: Microfinance Loan Distribution by Sector, 2020-2024 (billion birr)

Year to Agriculture Trade Manufacturing Construction Service Others Total

June 2020 5.1 4.8 0.8 4.1 1.2 1.4 17.5
June 2021 5.8 5.4 1.0 4.4 2.0 1.6 20.3
June 2022 6.7 7.6 1.6 4.5 3.4 1.6 25.4
June 2023 6.8 12.4 2.2 4.2 4.1 1.7 31.4
June 2024 7.1 16.9 2.5 4.4 6.7 2.1 39.7
Source: NBE Database

Figure 28: Distribution of Microfinance Institutions’ Non-Performing Loans by Borrowing Sector,

June 2024 (percent of total)

9.1

Agriculture
38.2 Manufacturing
13.9 Service
Construction
Others
5.8

3.7

Source: NBE Database 29.3

FINANCIAL STABILITY REPORT 63
NATIONAL BANK OF ETHIOPIA

Table 21: Major Profitability Items of the Microfinance Sector, 2020-2024 (billion birr)

June June June June June Change 2024 vs.

No Major items 2020 2021 2022 2023 2024 2023 (%)

1 Total income 3.5 2.9 4.0 6.4 9.0 39.4

O/w interest income 2.7 2.1 3.0 4.8 7.2 52.4

2 Total expense 2.9 2.3 3.1 5.2 5.9 13.4

O/w interest expense 1.1 0.8 1.0 2.3 3.2 39.8

3 Net income before tax 0.5 0.5 0.9 1.2 3.0 148.5
Source: NBE Database

D. SELECTED FINANCIAL DATA FOR THE CAPITAL

GOODS FINANCE BUSINESS SECTOR
Table 22: Capital Goods Finance by Sector, 2020-2024 (million birr)
June June June Change 2023
Items 2020 June 2021 2022 June 2023 2024 - 2024 (%)
Agriculture 151.1 370.3 506.7 341.1 263.7 (22.7)
Manufacturing 608.0 799.5 1,050.7 1,754.3 2,545.3 45.1
Construction 82.9 107.0 251.3 274.8 340.8 24.0
Services 96.7 221.0 312.7 347.4 506.7 45.9
Others 43.0 52.1 51.7 49.7 88.1 77.3
Total 981.7 1,549.9 2,173.1 2,767.3 3,744.6 35.3
Source: NBE Database

Table 23: Profitability of the Capital Goods Finance Sector, 2020-2024 (million birr)
June June June June June Change
Items 2020 2021 2022 2023 2024 2023 - 2024 (%)
Total Income 248.1 397.1 371.8 537.7 529.3 (1.6)
Total Expense 239.7 398.1 389.1 509.2 872.3 71.3
Net income/loss
before tax 8.3 (1.0) (17.5) 28.6 (343.0) (1,299.3)
Return on equity (%) 0.6 -0.02 (0.6) 1.1 (15.3) (1,490.9)
Return on assets (%) 0.3 -0.04 (0.3) 0.5 (5.3) (1,160.0)
Source: NBE Database

Table 24: Capital Goods Companies Soundness Indicators, 2020-2024 (percent)

June June June June June Change 2023 -

No Major items 2020 2021 2022 2023 2024 2024 (%)
1. Capital Adequacy
CAR 67.7 60.7 55.1 52.0 41.9 (10.1)
Debt to equity
ratio 72.6 93.2 105.0 122.6 184.5 61.9
2. Asset quality
NPLs 8.6 5.3 2.9 5.1 7.5 2.4
Source: NBE Database
64 FINANCIAL STABILITY REPORT
NATIONAL BANK OF ETHIOPIA

E. SELECTED FINANCIAL DATA FOR THE

INSURANCE SECTOR

Figure 29: Gross Premium by Class of Business, 2020-2024 (million birr)

Source: NBE Database