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Central Bank Establishes Ethiopian Deposit Insurance Fund

ADDIS ABABA – The National Bank of Ethiopia (NBR) has set up a deposit insurance fund to serve as a financial safety net for depositors of commercial banks and microfinance institutions.

The Ethiopian Deposit Insurance Fund has been established as per Council of Ministers Regulation No. 482/2021.

A deposit insurance system is a form of banking regulation that protects depositors and provides stability for the banking system.

“It is an important part of the financial safety net as it offers explicit depositor protection and prevents a ‘bank run’,” the central bank said.

“In view of this,” the NBE said, “the Ethiopian Deposit Insurance Fund has been established.”

PM Names founding CEO for the Fund

The NBE further stated that it has completed all the groundwork for the establishment of the Fund. These works involve the appointment of a new CEO for the deposit insurer.

Prime Minister Abiy Ahmed has already named Merga Wakweya as the founding Chief Executive Officer of the Fund.

The incoming  CEO is currently the Director of Microfinance Institutions Supervision at the central bank.

He is also serving on a five-member board of the deposit insurance fund along with NBE’s deputy Governor Solomon Desta, and Bank Supervision Directorate director Frezer Ayalew.

The other board members are the President of Zemen Bank Dereje Zebene and the President of the Association microfinance institutions Teshome Kebede.

The board is in charge of governing the Fund setup with the objective of compensating insured depositors of both commercial banks and microfinance institutions. 

NBE: ‘key for maintaining depositor confidence’

The Fund will undertake different activities to achieve its objectives including issuing directives, collecting premiums from financial institutions, and investing and managing resources.

Making payments to insured depositors in case a bank or microfinance institution fails is also among its major tasks.

The Fund “is expected to play a crucial role in maintaining depositor confidence, preserving financial stability, promoting economic growth, and developing the country,” the central bank said.

Its operationalization comes in the wake of a significant jump in deposit liabilities of the financial institutions and the government’s move to open up the finance sector for foreign investors.

Currently, there are 30 banks and 43 microfinance institutions operating in Ethiopia, serving the country’s population of nearly 115 million. 

The outstanding deposit liabilities of the banking system topped 1.8 trillion Birr (or equivalent to over $33 billion) in the first quarter of 2022/23 fisical year, reflecting 27.8% annual growth, as per NBE’s quarterly bulletin. The Microfinance Institutions’ total deposit liabilities also reached 21.8 Billion Birr, equivalent to over $404 million), depicting a 13.4% annual expansion.

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