Addis Abeba — A striking imbalance persists within Ethiopia's banking industry, where a mere 0.5% of borrowers hold nearly three-quarters of all loans, while the agricultural sector continues to be marginalized in terms of credit access.
A new report from the National Bank of Ethiopia (NBE) reveals that large borrowers--those with credit exposure exceeding 10 million birr--hold 74.8% of total loans.
The NBE attributes this significant concentration of credit to "the past practice of large-scale lending to major state enterprises and regional governments."
Published on 31 November, 2024, the second Financial Stability Report covers the annual activities of financial institutions up to the end of June 2024.
It stated that when including the top 10 borrowers in the banking industry, large state-owned enterprises held 14.7% of total loans and advances at the end of June 2024. This represents a significant decrease from the previous year's 23.5%.
"Excluding state-owned enterprises, concentration ratios are much lower, with the top 10 private borrowers making up 3.5% of bank loans and advances," the report states.
However, the concentration of credit among the top 0.5% of borrowers--those borrowing more than 10 million birr--increased from 73.7% of total banking loans in the 2022/23 reporting period to 74.8% in 2023/24.
A macroeconomist, speaking to Addis Standard on the condition of anonymity, contended that the concentration of credit among a small number of borrowers poses a significant challenge to Ethiopia's goal of improving financial accessibility.
"In a country where only 300,000 institutions and individuals have access to credit from the banking sector, this trend indicates that the situation is unlikely to change in the near future," the economist stated.
Studies highlight the limited access to consumer loans and credit in Ethiopia. Only 45% of the population has bank accounts, and less than 30% of adults save with formal financial institutions.
In terms of credit concentration by economic sector, the second Financial Stability Report indicates that manufacturing received the largest share of loans and advances, accounting for 23% of the total at the end of June 2024. This was followed by domestic trade and services, which constituted 20.1%.
Notable changes in credit composition over the year included a decline in loans to the export sector, which fell by 1.6 percentage points and saw minimal growth in absolute terms. On the other hand, loans to consumers increased by 1.3 percentage points, and credit to the building and construction sector rose by one percentage point.
These shifts, according to the NBE, suggest a reallocation of credit towards domestically focused economic activities and away from export-oriented sectors.
A significant concern for the macroeconomist is the declining share of credit allocated to the agricultural sector, which fell to 6.3% in 2024 from 6.4% the previous year.
"Given the significance of agriculture to the national economy, the current level of credit allocated to the sector is insufficient to drive structural change," the expert argued.
Both the first and second Financial Stability Reports indicate that nearly all loans (approximately 99%) were allocated to borrowers residing in urban areas.
As of June 2024, the total deposits held by Ethiopia's 31 commercial banks reached nearly 2.5 trillion birr, while total loans and bonds amounted to just under 2.2 trillion birr.
The NBE categorizes commercial banks into three groups based on asset size: large, medium, and small.
The state-owned Commercial Bank of Ethiopia (CBE) is the only institution classified as a large bank. Five banks, including Awash, Abyssinia, Dashen, and Hibret banks, as well as the Cooperative Bank of Oromia, are categorized as medium-sized banks. The remaining 25 banks are classified as small institutions.
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Despite the expansion of banks and the entry of new players into the industry, the macroeconomist noted that microfinance institutions (MFIs) are better equipped to address the financial needs of the agricultural sector.
However, the latest report revealed a decline in loans to agriculture through MFIs, dropping from 21.6% of total microfinance loans in the year ending June 2023 to 18% in the year ending June 2024.
On the other hand, loans to the trade sector increased from 39.4% to 42.6% during the same period, signaling a pronounced shift away from rural and agriculture-focused financing.
Currently, 56 MFIs are operating in the country, collectively managing a total of 56 branches.
As of June 2024, these institutions served 829,078 loan clients. In addition, MFIs total deposits amounted to 31.4 billion birr, while their net loans stood at 38.6 billion birr.
