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Investment on Development Bank of Ethiopia Bonds (Directive No. 825/2021)

National Bank Of Ethiopia825/2021

Summary

This directive establishes requirements for commercial banks in Ethiopia to invest in Development Bank of Ethiopia (DBE) Bonds to secure stable, long-term funding for development projects, sourced from the domestic market.

Who's affected

Commercial banks operating in Ethiopia and the Development Bank of Ethiopia.

Action required

Commercial banks must annually invest a minimum of 1% of their outstanding loans and advances in DBE Bonds until this holding reaches 10% of their total outstanding loans and advances, and submit annual reports to the National Bank of Ethiopia.

Key points

7
  • Mandatory investment by commercial banks in DBE Bonds.
  • Minimum annual investment of 1% of outstanding loans and advances.
  • Target holding of 10% of total outstanding loans and advances in DBE Bonds.
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    • DBE Bonds are guaranteed by the Federal Government.
    • Specific interest rate and maturity period for DBE Bonds.
    • Annual reporting requirements for commercial banks and DBE.
    • Penalties for non-compliance and fraudulent reporting.

Requirements

8
  • Commercial banks shall annually invest a minimum of 1% of their outstanding loans and advances in DBE Bonds until the aggregated bond holding equals 10% of its total outstanding loans and advances.
  • The audited total outstanding loans and advance position of a bank as of June 30 of each year shall be used as a basis to determine the required level of investment in the following year.
  • DBE bonds shall have a maturity period of 3 years.
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    • DBE bonds shall pay a bond rate at least 2 percentage points higher than the minimum interest rate paid on saving deposit at the time of issuance.
    • Interest on DBE bonds shall be paid annually.
    • DBE bonds shall be guaranteed by the Federal Government of Ethiopia, fully and unconditionally.
    • Commercial banks shall annually submit investment in DBE Bond reports to the National Bank within three days of investment.
    • The Development Bank of Ethiopia shall annually submit interest on each bank’s investment in DBE Bond report to the National Bank within three days from June 30 of each year.

Rights and permissions

2
  • Commercial banks have the right to receive interest on their investment in DBE Bonds, paid annually.
  • The Federal Government of Ethiopia guarantees DBE bonds fully and unconditionally.

Restrictions

2
  • The investment in DBE Bonds is mandatory for all commercial banks operating in Ethiopia.
  • The investment amount is restricted to a minimum of 1% annually, capped at 10% of total outstanding loans and advances.

Penalties

1
  • Any commercial bank or Development Bank of Ethiopia failed to report as per the deadline or report fraudulent figures against this Directive shall be punished in accordance with article 26 of Proclamation No.591/2008.

Objectives

3
  • To secure stable and long-term funding for sustainable financing of development-oriented projects.
  • To secure funding from the domestic market.
  • To raise funds from commercial banks through the sale of federal government-guaranteed Development Bank of Ethiopia Bonds.

Organizations

2
  • National Bank of Ethiopia
  • Development Bank of Ethiopia

Legal references

2
  • National Bank of Ethiopia Establishment Proclamation No.591/2008 (sub-articles 5.4, 5.8 and 27.2)
  • Proclamation No.591/2008 (article 26)
Original sourcehttps://justice.gov.et/en/directives/investment-on-development-bank-of-ethiopia-bonds-directive-no-825-2021/
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