Transparency and trust are essential for the healthy operation of the finance industry of any nation.
Naturally, these critical factors tend to exist in an environment of open dialogue between the various actors of the industry. The recent fall out between the private banks operating in
The distrust came to head last week at a consultative forum convened to deliberate on a study that dwelt on the challenges facing money supply in
While acknowledging that the finance industry is saddled by a raft of problems, the Governor of NBE,
Such divergence of positions between the central bank and private banks casts doubt over the health of the finance industry. Given that the government, shareholders, depositors, borrowers and other customers all have a stake in the operation of private banks, the difference should not have assumed such proportions. While private banks, which play an important role in the Ethiopian economy, have the right to express frustration at the challenges confronting them, they are also obliged to make their views known in a candid and responsible manner as well as to make themselves part of the solution.
On its part, the NBE needs to see to it that the directives it issued while exercising its supervisory power are grounded in the facts on the ground. Admittedly, the bulk of the directives issued by the NBE to date have not only helped private banks remain stable and turn in impressive results year after year, but have also saved some from the brink of collapse. That said, some of the directives need to be revisited in view of the existing reality.
The central bank and private banks seem unable to reach a common understanding on the latter's perceived problems associated with and the way forward pertaining to the 27 percent NBE-Bill directive and the directive requiring the loan portfolio of private banks to constitute of at least 40 percent short-term loans. There can be no denying that the banks have remained profitable despite the directives they describe as being restrictive. However, they are declining to lend the money they could due to the air of distrust. Had this mistrust been dealt with through dialogue, the shortage in money supply that was cited as the reason for not providing to a greater number of potential borrowers would have been averted. The economy is bound to be detrimentally affected when productive citizens sit idle and are unable to contribute their share owing to the lack of financing. This is precisely why a frank discussion is crucial. Another difficulty faced by borrowers in obtaining loans is linked with what the collateral banks demand their customers to provide. The stark problems attending the valuation of the properties put up as collateral are as much sources of distrust as are the aforementioned NBE directives. Consequently they starve citizens who wish to engage in investment activities of the cash they need to commence/expand their operation. This in turn results in increased unemployment and deters creativity and entrepreneurship.
It is imperative that the NBE and private banks sit down and narrow their polarized views over the directives that have been the bones of contention between the two parties. Their reluctance to cede ground and insistence that the other side is to blame solely for the shortage in money supply can neither dispel the distrust between them nor bring about a solution to the problem. Both need to understand that if they do not set in motion immediately the process necessary to restore trust among them, the finance industry's fate will be uncertain. This is a scenario nobody can countenance.
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