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Banks (Finance)

Ethiopia's Central Bank Maintains Credit Growth Cap with Minimal Implications

Strategic Insights

— 2 min read

The National Bank of Ethiopia's Monetary Policy Committee (MPC) has kept the credit growth cap relatively intact, despite expectations of a full reversal. Instead, the committee has loosened the two-year cap on bank lending growth by six percentage points, increasing it to 24% from 18% just nine months ago. This decision has been met with skepticism from financial experts and private bank executives, who believe the change will have minimal impact on the financial sector.

Key Takeaways:

  • The MPC has raised the allowable annual credit growth rate to 24%, a significant increase from the 18% limit established just nine months ago.
  • Financial experts and private bank executives are skeptical of the decision, believing it will have minimal impact on the financial sector.
  • The credit cap was initially set at 14% in August 2023 as part of a broader strategy to combat inflation.
  • The lifting of the bond requirement is beneficial for new loan origination, but resources remain tied up at the NBE for the duration of the bond's term.
  • Liquidity constraints have worsened due to a series of stringent regulatory measures over the years.
  • The government's lack of major new projects or extraordinary expenditures means little to no substantial changes in system-wide liquidity are expected.
  • Analysts are questioning the regulator's reluctance to fully lift a measure that is widely anticipated to have minimal market impact.

Statistics:

  • The initial credit growth cap was set at 14% in August 2023.
  • The cap was increased to 18% in January 2025.
  • The new credit growth cap is 24%, a significant increase from the previous limit.
  • Domestic credit growth reached 14.0 percent for the period from August 2024 to 2025.
  • The banking system's outstanding loans increased by 5.4 percent compared to the June 2025 balance.
  • Year-on-year growth in broad money supply (M2) and reserve money stood at 23.1 percent and 70.7 percent, respectively, as of the end of August 2025.

Sources:

  • A bank president quoted in Capital, expressing skepticism about the new credit growth cap.
  • A seasoned bank president, echoing the sentiment that the increased cap will not produce meaningful positive impact on the financial industry.
  • A statement dated Monday, September 29, from the Monetary Policy Committee (MPC), reported domestic credit growth reached 14.0 percent for the period from August 2024 to 2025.
  • The NBE's decision to accumulate foreign exchange through gold purchases, injecting local currency into the banking system.
  • The MPC's readiness to implement new policy instruments to address any potential negative effects on the economy resulting from the looser credit policy.

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