The Ethiopian Parliament approved a $550 million loan agreement aimed at increasing the capital of the Commercial Bank of Ethiopia (CBE). This move is intended to strengthen the state-owned bank, making it more competitive and enabling it to operate effectively within the region.
The loan is part of a $700 million financing package provided by the International Development Association (IDA), a member of the World Bank Group, to support Ethiopia’s financial system. During a parliamentary session, Assistant Government Spokesperson Meseret Haile stated that three state-owned financial institutions, including the Commercial Bank of Ethiopia, would benefit from the loan. The funds will be used not only to raise the bank’s capital but also to implement structural reforms and improve risk management practices in line with international banking standards.
According to the explanatory document submitted to Parliament, $560 million of the total loan is allocated for the reform, restructuring, and rehabilitation of the bank, with $550 million specifically designated for the capital increase. This marks the second time in five months that the government has presented a capital-raising initiative for the bank to Parliament. In October, a proclamation was passed authorizing the issuance of a 54 billion birr bond for the bank’s capital increase.
At that time, it was revealed that the bank, which holds the largest share of Ethiopia’s commercial activity, had only 4 billion birr in authorized capital. The proclamation emphasized the need for a gradual increase in paid-up capital to maintain the bank’s market share. Consequently, Parliament authorized the Ministry of Finance to issue a 900 billion birr government bond, known as the “Government Debt Document,” to facilitate this increase.
During today’s session, Dr. Abraham Berta, a representative of the Ethiopian Citizens for Social Justice Party (EZEMA), raised questions about the criteria used to justify the loan allocation. He noted that while the bank reports being profitable, the lack of detailed information presented in Parliament undermines proper checks and balances. Other parliamentarians echoed similar concerns, citing a lack of clarity regarding the additional funds allocated for the project’s implementation.
Responding to these concerns, State Minister of Finance Dr. Eyob Tekaleng explained that the capital increase aligns with Ethiopia’s domestic economic reform agenda, which includes macroeconomic, sectoral, and structural reforms. Strengthening the financial system, he emphasized, is a key component of the macroeconomic reforms.
Dr. Eyob highlighted that the government, in collaboration with the World Bank, had identified a capital capacity gap in the Commercial Bank of Ethiopia. He affirmed that addressing this gap is a priority under the current loan agreement. “Most of the funds will go toward increasing the Commercial Bank of Ethiopia’s capital, enabling it to become more competitive and capable of operating on a regional scale,” he stated.
Dr. Eyob further noted that the loan-funded project would contribute to the stability of Ethiopia’s financial sector. Following this explanation, the loan agreement was approved by a majority vote, with only three members of Parliament voting against it.
The decision marks a significant step in the government’s efforts to reform and modernize the country’s financial sector, ensuring that state-owned institutions like the Commercial Bank of Ethiopia are better equipped to compete both locally and internationally.
Source: Ethiopia Insider
