NBE Says Banks Must Manage Their Own Liquidity as Deposit Competition Intensifies

The National Bank of Ethiopia (NBE) says commercial banks must take primary responsibility for managing their liquidity as competition for deposits intensifies across Ethiopia’s financial sector, while the central bank provides the regulatory framework and instruments needed to address temporary funding pressures.

The position comes amid growing concerns among financial sector experts over liquidity risks facing some banks, including the impact of sudden deposit withdrawals and increasing competition from non-bank financial institutions such as Savings and Credit Cooperative Societies (SACCOs).

NBE Chief Economist and Vice Governor Fikadu Digafe said the central bank has already established several mechanisms that commercial banks can use to manage liquidity, including the interbank money market, standing facilities and emergency liquidity support.

“As a basic principle, banks are established by shareholders to make profits while operating under the rules and regulations set by the central bank,” Fikadu told Capital. “They know their responsibilities and what is expected from them.”

He said decisions regarding deposit mobilisation, interest rates and daily operations ultimately remain with bank management and boards of directors.

“We have put instruments, codes of conduct, directives, and standing facilities that banks can use to fill their liquidity needs. There are also liquidity and reserve requirements,” he said.

Deposit Competition Raises Pressure

The debate comes as financial institutions compete more aggressively for deposits. Industry sources indicate that some SACCOs are offering interest rates of as much as 35 percent on certain savings products, compared with approximately 26 percent offered by some commercial banks on time deposits.

SACCOs play an important role in expanding access to financial services, particularly among communities underserved by conventional banks. However, experts warn that aggressive deposit mobilisation could increase funding pressure on commercial banks, particularly smaller and emerging institutions.

Higher deposit rates can help banks attract funds, but they can also increase funding costs and put pressure on profitability if lending returns do not rise at the same pace.

Experts have also raised questions about whether Ethiopia’s existing regulatory framework adequately captures the broader financial stability implications of competition between banks and SACCOs.

Fikadu said SACCOs do not fall under the NBE’s supervisory mandate because they are not classified as deposit-taking financial institutions regulated by the central bank.

“SACCOs have never been under NBE regulation, so the central bank has no role in regulating them,” he said.

Global Bank Puts Liquidity and Governance in Focus

Recent developments at Global Bank of Ethiopia have added to concerns about liquidity and governance practices within the banking sector.

The NBE recently removed former Global Bank CEO Tesfaye Boru following a special inspection that identified regulatory and internal-policy violations involving corporate governance, lending, human resource management, foreign exchange operations and overall financial management.

The regulator said the bank’s board and senior management acknowledged the findings and submitted a corrective action plan. However, the NBE determined that the deficiencies were sufficiently serious, particularly in light of previous warnings issued to Tesfaye, to warrant stronger action.

Tesfaye was removed effective July 28, 2026, and barred for five years from holding senior executive or board positions in any Ethiopian financial institution.

Global Bank subsequently said it had implemented administrative measures but did not provide further details.

While the full circumstances surrounding the bank’s recent difficulties have not been publicly disclosed, sector sources have pointed to significant deposit withdrawals, particularly involving time deposits, as an important source of liquidity pressure.

The episode has therefore renewed attention on how banks manage their funding structures and whether internal risk-management systems are adequately prepared for sudden changes in deposits.

NBE Maintains Banks Have the Necessary Tools

Fikadu maintained that the central bank continues to monitor liquidity conditions across the banking system and has monetary policy instruments available to manage system-wide liquidity.

He pointed to the interbank market, standing facilities, reserve requirements and emergency liquidity mechanisms as tools available to banks when they face temporary funding pressures.

The NBE’s position reflects a broader shift in Ethiopia’s monetary policy framework toward indirect, market-based instruments. Rather than routinely intervening in individual banks’ business decisions, the central bank provides mechanisms through which financial institutions can manage liquidity within the regulatory framework.

This approach places greater responsibility on bank boards and management to maintain adequate liquidity buffers, manage asset-liability mismatches and determine appropriate deposit and lending strategies.

A Broader Financial Stability Question

The debate is emerging as Ethiopia’s financial sector becomes more competitive and diversified. Commercial banks are competing for deposits not only with one another but increasingly with non-bank financial institutions, while the NBE is simultaneously moving toward a more market-oriented monetary policy framework.

For smaller banks, the challenge can be particularly significant. Institutions with narrower deposit bases may have to offer higher returns to attract funds, potentially increasing their cost of funding and creating pressure on margins.

At the same time, dependence on short-term or high-cost deposits can create vulnerabilities if large depositors withdraw funds unexpectedly.

This makes asset-liability management, liquidity forecasting, internal controls and effective board oversight increasingly important as banks expand their operations.

The NBE’s position does not eliminate the regulator’s responsibility to monitor systemic liquidity risks. Instead, it places greater emphasis on distinguishing between system-wide liquidity management, which falls within the central bank’s mandate, and individual bank liquidity management, which remains the responsibility of each institution.

As Ethiopia’s financial sector continues to liberalise and competition for savings intensifies, the effectiveness of that balance will become increasingly important for maintaining financial stability and public confidence.

Source: Capital