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Establishment and Operation of Treasury Bonds (Directive No. 956/2022)

National Bank Of Ethiopia956/2022

Summary

This directive establishes and outlines the operational procedures for Treasury Bonds in Ethiopia, setting guidelines for their issuance, purchase, transfer, redemption, and penalties for non-compliance. It aims to enhance bank participation in supporting the Ethiopian economy.

Who's affected

Banks operating in Ethiopia, excluding the Development Bank of Ethiopia.

Action required

Banks must comply with the monthly reporting, purchase, and settlement requirements for Treasury Bonds as outlined in the directive.

Key points

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  • Treasury Bonds are established for banks (excluding Development Bank of Ethiopia).
  • Purchase of bonds is linked to banks' monthly loans and advances disbursements.
  • Specific limits are set for short-term loans (min 25%) and revolving credit facilities (max 15%) in a bank's portfolio.
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    • Bonds have a 5-year maturity and an interest rate 2% above the minimum saving deposit rate.
    • Interests on Treasury Bonds are tax-exempt.
    • Penalties apply for failure to purchase bonds or for fraudulent activities.

Requirements

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  • Banks must buy the allotted Treasury Bonds monthly.
  • Volume of Treasury Bonds to be supplied depends on the amount of new loans and advances disbursed by a bank.
  • Banks must notify the National Bank in writing of their allotment amount within 10 days after the end of the reference month.
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    • Settlement date for purchase of Treasury Bonds is within 15 days after the end of the reference month.
    • Total outstanding balance of short-term loans of a bank shall not be less than 25 percent of its total outstanding loans and advances (excluding Treasury Bonds).
    • Total outstanding balances of revolving credit facility shall not exceed 15 percent of total outstanding loans and advances of the bank.
    • Treasury Bonds shall have a maturity period of 5 years.
    • The interest rate for each Treasury Bond shall be 2 percentage points higher than the minimum saving deposit rate.
    • The Government shall pay the interest accrued on the Treasury Bonds on an annual basis.
    • Banks may transfer their Treasury Bonds to another bank by endorsement.
    • Banks may use the Treasury bond as collateral for any agreement with banks.
    • Banks may arrange with the National Bank to hold the bond in safe custody.
    • On maturity date, the bond shall be redeemed and credited to the Payment and Settlement Account of the bank at the National Bank.
    • Banks may authorize the National Bank to rollover their Treasury Bonds at the maturity date.
    • Holders must inform the National Bank in writing in case of loss, theft, misplacement, defacement, or damage of a Treasury Bond.
    • Interests or premiums received by the holder of the Treasury Bonds are exempted from income tax.
    • Banks failing to purchase Treasury Bonds as required shall be subjected to a penalty.

Rights and permissions

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  • Banks have the right to transfer their treasury bonds to another bank by endorsement.
  • Banks have the right to use the treasury bond as collateral for any agreement with banks, including the National Bank.
  • Banks have the right to arrange with the National Bank to hold the bond in safe custody.
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    • Banks have the right to authorize the National Bank to rollover their Treasury Bonds at the maturity date.
    • The National Bank has the right to change the provisions related to tax on Treasury Bonds without giving notice to holders.
    • The National Bank has the sole discretion to issue a copy of a lost Treasury Bond after due inquiry and satisfaction.
    • The National Bank reserves the right to revise the allotment ratios when necessary.

Restrictions

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  • Treasury Bonds are sold to all banks excluding the Development Bank of Ethiopia.
  • No duplicate of the Treasury Bonds shall be issued in case of loss.
  • Total outstanding balance of short-term loans of a bank shall not be less than 25 percent of its total outstanding loans and advances excluding Treasury Bonds outstanding balance.
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    • Total outstanding balances of revolving credit facility shall not exceed 15 percent of total outstanding loans and advances of the bank.
    • Endorsement for transfer of treasury bonds must be evidenced by authorized signature(s) and full name of the transferee.

Penalties

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  • A bank failing to purchase the Treasury Bond as required shall be subjected to a penalty assessed at the maximum lending interest rate on loans and advances charged by the bank, computed on the allotment amount and multiplied by the number of days of delay up to a maximum of ten working days following the final day of the settlement date.
  • Any bank engaging in fraudulent activities related to loan disbursement reporting, allotment amount, or bond transfer shall be punishable in accordance with Article 26 of the National Bank Establishment (as Amended) proclamation No.591/2008.

Objectives

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  • To establish and operate Treasury Bonds on behalf of the Ethiopian Government.
  • To enhance the participation of banks in supporting the balanced growth of the Ethiopian Economy.
  • To regulate the supply and availability of money and credit through Treasury Bonds.
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    • To maintain price and financial stability conducive to the balanced growth of the Ethiopian economy.

Organizations

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  • National Bank of Ethiopia
  • Government of Ethiopia
  • Commercial Bank of Ethiopia

Legal references

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  • National Bank of Ethiopia Establishment Proclamation No. 591/2008 (as amended)
  • Article 7 of the Government Bonds Proclamation No.262, 1969
  • Article 26 of the National Bank Establishment (as Amended) proclamation No.591/2008
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    • National Bank of Ethiopia directive No. SBB/69/2018
Original sourcehttps://justice.gov.et/en/directives/establishment-and-operation-of-treasury-bonds-directive-no-956-2022/
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