ASSESSMENT ON NBE BILL PURCHASE DIRECTIVE AND LOAN PERFORMANCE: THE CASE OF NEW ENTRANT PRIVATE COMMERCIAL BANKS

Abstract

This study attempts to assess NBE bill purchase directive and credit performance of new entrant private Banks (NEPB). Specifically, the study focused on six banks joined the Banking industry the last six years and assessed the relation of the NBE bill purchase directive with liquidity, credit portfolio, asset- liability matching position and credit decision of these Banks. Descriptive research design was used for the study where structured questionnaires were administered to a sample size of 100 respondents and the financial data of these Banks, effective from the issuance of the directive, were reviewed. The primary and secondary data were analyzed and presented. The result indicated that the NBE- bill purchase directive affects the liquidity position of the new entrant private Banks as the bill shows steady growth whereas slow pace is exhibited in deposit growth on the other side. Thus, it raises the stiff competition of banks for mobilizing loanable fund. In addition to this, the Banks credit decision process tilted towards fulfillment of the limit set by NBE with respect to loan tenor and product. Consequently, the Banks are facing challenges as they couldn’t satisfy the customers demand. The study recommends, the National Bank of Ethiopia to revisit the NBE- bill purchase directive, in view of the following alternatives: - increasing the maturity period of short term loans, lifting the bill purchase for Export, Manufacturing and Agriculture sectors, increasing the share of revolving facility especially for new entrant Banks as the credit customer base of the Banks has not yet been enhanced. Moreover, the study recommends the new entrant private Banks should form consortium and further examine the severity of the problem and presented to the concerned organ.