1. ETHIOPIA: REGULATORY AND SUPERVISORY FRAMWORK FOR DEVELOPMENT BANK OF ETHIOPIA
Getahun Nana
A presentation in working session “Revitalizing National Development Banks for Accelerating Achievement of the SDGs in Africa”
During A Conference on SDGS Implementation in Africa – Reflections on a Three-Year Journey held in Kigali, Rwanda on 13th June 2019

2. Financial Sector Land Scape in Ethiopia
Private owned Commercial Banks = 16
Government owned Commercial Bank = 1
Government owned Development Bank =1
Insurance companies = 17 ( one Government owned
Re-insurer company = 1
Micro-finance institutions = 35 (5 regional govt owned)
Capital goods financing companies = 5
Savings and credit cooperatives=18
No capital market
Total Banks = 18

3. ESTABLISHMENT, MISSION & SOURCE OF FUND
DBE is established by Council of Ministers Regulation and licensed by the NBE
Owned by the Government 100%
Its mission is: provision of development credit to viable projects along with technical support and advice in areas designated as priority by the Government which currently include:
Commercial Agriculture projects,
Agro-processing industries,
Manufacturing and extractive industries, and
SMEs
It is not involved in housing, service and infrastructure financing
Major source of funding ( 68% of total Assets or 86% of total lending to Central Gov’t and Businesses as of Dec 2018 ) is Central Bank (NBE) Borrowing
NBE borrowing is non inflationary as the funds are collected from private banks by selling NBE bills

4. REGULATORY & SUPERVISORY PRACTICE
Ownership role is played by Ministry of Finance
Regulated and supervised by the central bank (NBE)
The NBE applies a combination of differentiated and similar regulatory requirements for DBE and Commercial Banks (CBs)
Similar Requirements to CBs Include:
Corporate Governance (Board and CEO appointments as well as their duties and responsibilities)- applicable only in principle
Capital adequacy (still under Basel I, 8% of RWA)
Foreign Exchange Open Position limit ( ±15% of net worth) (comply)
Reporting and External Audit requirements (comply)
On site examinations and off-site surveillance ( On-site frequency = 2 years)
Risk Management framework
Administrative sanctions ( Comply except Corporate Governance)

5. Permissible Activities
Allowed to :
underwrite medium and long term credit to borrowers engaged in priority sector businesses
provide all banking services to its medium and long term borrowers including:
extending short-term loans
maintaining current account/transaction accounts/
Receiving deposits
Providing payment services
Giving international banking services (L/C, remittances, trade )
Providing advisory services
Issuing bonds and time deposit certificates as well as buying government papers
Borrowing from local and foreign (subject to authorization of Ministry of Finance for foreign) sources
The Bank is not allowed to give any banking services to non-borrowers including receiving retail deposits, payment services and FX services

6. REGULATORY & SUPERVISORY PRACTICE
Differentiated Regulatory Requirements
Minimum Loan classification and provisioning
Limits on single and related party borrower loan ( Board is required to set the limit, in principle 25%, in practice it exceeds, Gov’t enterprises are not considered related party )
Liquidity requirement ( no specific requirement)

7. Current Status
Loans grew fast since 2012 (by 36 on average between 2012 & 2018)
Lends to both Central Government ( direct budget finance 51% of the total ) and business (including public enterprises 49%)
NPLs Reached --% as at June 2018
Capital Adequacy ratio 12.3 % as of June 2018
Earning remain very low between 2012 and 2018
RoE – 4.5% on average
RoA -0.47% on average
Thus the Bank appears unhealthy
There is critical mission drift as it mainly became central government budget financier (which is not stated in its mission)

8. CHALLENGES Conflicting social and economic objectives
The Board is dominated by government appointees (mostly politicians) and thus it is vulnerable to undue political interference
High dependence on NBE funding
Financial sustainability and current unhealthy condition
Weak risk-management and project evaluation capacity
Hiring and retain highly qualified staff
Poor innovation capability (financial products)
Lack of clarity in accountability

9. Thank You
June 2019