Economy
Central Bank Bars Banks from Paying Deposit Interest Upfront
Addis Fortune · 3 days ago · Read the Full Story on Addis Fortune
AI SUMMARY
The National Bank of Ethiopia has prohibited commercial banks from paying or booking deposit interest upfront to prevent market distortion and unhealthy competition.
- The National Bank of Ethiopia issued a directive barring banks from paying or booking deposit interest upfront before a deposit reaches maturity.
- The order was communicated to all commercial banks by Solomon Desta, Vice Governor in charge of supervising financial institutions.
- Supervisory findings revealed that some banks were advancing interest on time deposits before maintaining the underlying balances for the required period.
- The Central Bank stated that the practice inflates balances prematurely, distorts the market, fosters unhealthy competition, and risks the misuse of public funds.
- Non-compliance with the directive will result in supervisory and enforcement measures.
- Demessew Kassa, secretary general of the Ethiopian Bankers Association, noted the decision is expected to have a minimal immediate effect on banking operations.
- At the end of the 2024/25 financial year, total banking system deposits reached 3.5 trillion Birr, with time deposits accounting for 251.7 billion Birr or 7.2 percent.
- Savings deposits made up two trillion Birr or 57.1 percent, and demand deposits reached 1.25 trillion Birr or 35.7 percent.
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