Are Ethiopia’s Banks Really Thriving — Or Is the Burden Just Shifting to Citizens?
By Yonas Negusie Ayele
Recent headlines showcasing record-breaking deposit growth in Ethiopia’s commercial banks—such as the Commercial Bank of Ethiopia, Awash Bank, and Siinqee Bank—may lead one to believe that the economy is expanding, innovation is flourishing, and banks are doing what they do best: financial intermediation that fuels growth. But a closer look reveals a much more sobering story.
A Surge Without Substance
I was alarmed by the surge in deposits. Not because growth is unwelcome, but because of how it has occurred. This isn’t the result of expanded lending to productive sectors, startup booms, or innovation that spurred job creation. Instead, it appears to be the result of a quiet but forceful shift in fiscal policy—one that places a heavier burden on everyday Ethiopians while funneling resources into the banking sector.
The IMF Deal: When Borrowing Ends, Taxation Begins
At the core of this shift is the Government of Ethiopia’s recent agreement with the International Monetary Fund (IMF). As part of the reform package, the government committed to cease borrowing directly from the National Bank of Ethiopia. To make up for this shortfall, the state turned inward—to its citizens.
Within a short span, Ethiopians have been confronted with:
New VAT charges on utility bills, and Bank transaction fees
These measures may appear on the surface as technocratic adjustments. But their combined effect has been to significantly increase the government's domestic revenue, which now stands at more than a 1 trillion birr—much of it collected through citizens’ wallets.
Follow the Money: How Banks Became Beneficiaries
Where Does All This Capital Flow?
The majority of these funds circulate through commercial banks, with the Commercial Bank of Ethiopia (CBE)—the government’s principal financial institution—handling the lion’s share. However, private banks such as Awash Bank have also emerged as influential players. They are instrumental in managing digital platforms for utility bill collections and generating steady revenue streams through service fees. These banks also enhance their liquidity positions and strengthen their balance sheets by offering time deposit products specifically tailored for utility agencies and government departments, effectively locking in large volumes of capital.
This strategy is corroborated by the reporter newspaper indicating that the Ethiopian Electric Utility (EEU) had placed 500 million birrs in a time deposit at Awash Bank as of July 2024. The report states:
“The EEU report reveals the firm deposited a half a billion birr into a time deposit account at Awash Bank, which carries an 18.25% interest rate, in July 2024.”
Given prevailing trends, it is reasonable to assume this figure may have grown significantly since then.
Take Siinqee Bank as a case in point. Closely affiliated with the Oromia Regional State, Siinqee channels nearly all public payments within the region. As a result, its deposit base has surged by an astonishing 879% over the past three years. However, this dramatic growth is not without complications. Per Addis Fortune, Siinqee's operational efficiency is under serious strain, as evidenced by a steep decline in its loan-to-deposit ratio, which dropped from 96.9% to 55.1%, well below the industry average of 70% to 80%.
In contrast, Awash Bank posted record profits, with net earnings doubling to reach 22 billion birr, marking an increase of 11 billion birr compared to the previous year. Meanwhile, the Commercial Bank of Ethiopia has reported outstanding deposit growth, with total deposits reaching 1.65 trillion birr—a nearly 30% year-on-year increase.
Notably, the year-on-year growth rates recorded by these banks during 2016–2017 significantly outpaced those from 2015–2016, highlighting a phase of unprecedented financial expansion and structural strengthening across Ethiopia’s banking sector.
The Role of the Interbank Loan Scheme in Boosting Bank Profits
A crucial yet often overlooked factor behind the impressive profit growth across Ethiopian banks is the interbank loan scheme, recently introduced under the National Bank of Ethiopia’s new directive. This system allows banks to lend to one another overnight at an interest rate of 15%, providing a lucrative opportunity to manage short-term liquidity needs efficiently.
By participating in this overnight lending market, banks not only cover liquidity gaps but also generate substantial interest income, which has become a significant contributor to their overall profitability. This scheme complements other revenue streams such as service fees from digital platforms and the locking in of deposits through time-bound accounts.
In my view, the interbank loan market’s relatively high overnight rate is a major driver of the sector’s recent profit surge, reinforcing the momentum created by growing deposits and expanded financial services. Undeniably the scheme has served Banks with sufficient deposit as a way to circumvent the year on year 18% credit cap that is imposed on them by National Bank of Ethiopia.
The Hidden Windfall: Exchange Rate Reform
On July 29, 2024, NBE implemented a sweeping Foreign Exchange Directive (FXD/01/2024). The birr was devalued sharply, from around 57 to 117 per dollar — over a 100% depreciation. This was accompanied by:
Elimination of FX surrender requirements
Liberalization of foreign currency accounts
Permission for forex bureaus and offshore borrowing
For banks and exporters holding foreign assets, this resulted in a massive windfall gain. Commercial banks' FX reserves shot up to $2.4 billion by October 2024 — a 240% rise from June.
Here’s the twist: under previous National Banks of Ethiopia, these windfalls were taxed at 100%. But the new FX directive removed this provision, letting banks and businesses retain the full gain. The result? A powerful and artificial boost to their balance sheets and profits.
Let’s Not Be Misled: This Is Not Economic Growth
Let’s be clear: this is not the result of banks supporting startups, funding small businesses, or stimulating innovation. There has been no game-changing policy, no financial leap that justifies this surge in deposits. This is a textbook example of extractive fiscal policy:
Pressure citizens through increased taxes, fees, and tariffs → move those funds through banks → banks lend the funds to large borrowers → those borrowers repay with profits → banks post record numbers.
There is no trickle-down. There is no grassroots growth. What exists is a top-down funneling of national revenue—sourced from households and small businesses—into institutions already wired into government contracts and formal payments.
V. Who Gains, Who Pays?
Banks lend to large and relatively safe borrowers—often businesses with state contracts. These borrowers generate profit, repay loans, and enhance banks’ performance metrics. The banks, in turn, proudly publish annual results showing strong deposit growth and profitability.
But let’s ask: at whose expense?
The household struggling to pay its water and electricity bills.
The urban resident squeezed by rising VAT.
The small trader hurt by fuel inflation.
The unemployed youth waiting for economic stimulus that never comes.
Closing Thought: Growth Without Development?
Yes, the numbers are going up. But what kind of numbers? And what kind of growth?
If Ethiopia’s banking sector is thriving on the back of fiscal extraction, not economic expansion, we must ask:
Is this truly a win for development—or just a burden shift masked as success?
We need a banking system that empowers, not one that collects.
We need a public finance system that stimulates, not one that strains.
And above all, we need a conversation grounded in transparency—about who really pays for the so-called progress we see in banking and finance today.
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Insightful perspective that urges the banking sector to rethink its approach and shift from accumulating artificial capital to pursuing sustainable, organic growth.