Evolution of the National Bank of Ethiopia

The National Bank of Ethiopia was established in 1963 by proclamation 206 of 1963 and began operation in January 1964. Prior to this proclamation, the Bank used to carry out dual activities, i.e. commercial banking and central banking. The proclamation raised the Bank's capital to Ethiopian dollars 10.0 million and granted broad administrative autonomy and juridical personality. Following the proclamation the National Bank of Ethiopia was entrusted with the following responsibilities.

·         To regulate the supply, availability and cost of money and credit.

·         To manage and administer the country's international reserves.

·         To license and supervise banks and hold commercial banks reserves and lend money to them.

·         To supervise loans of commercial banks and regulate interest rates.

·         To issue paper money and coins.

·         To act as an agent of the Government.

·         To fix and control the foreign exchange rates.

However, monetary and banking proclamation No. 99 of 1976 came into force on September 1976 to shape the Bank's role a According to the socialist economic Principle that the country adopted. Hence  the Bank was allowed to participate actively in national planning, specifically financial planning, in cooperation with the concerned state organs. The Bank's supervisory area was also increased to include other financial institutions such as insurance institutions, credit cooperatives and investment-oriented banks. Moreover the proclamation introduced the new Ethiopian Currency called 'birr' in place of the former Ethiopia Dollar that eased to be legal tender thereafter.

The proclamation revised the Bank's relationship with Government. It initially raised the legal limits of outstanding government domestic borrowing to 25% of the actual ordinary revenue of the government during the proceeding three budget years as against the proclamation 206/1963, which set it to be 15%.

This proclamation was in force till the new proclamation issued in 1994 to reorganize the Bank according to the market-based economic policy so that it could foster monetary stability, a sound financial system and such other credit and exchange conditions as are conducive to the balanced growth of the economy of the country. Accordingly the following are some of the powers and duties vested in the Bank by proclamation 83/1994.

·         Regulate the supply and availability of money & credit and applicable interest and other hanges.

·         Set limits on gold and foreign exchange assets which banks and other financial institutions authorized to deal in foreign exchange an hold in deposits.

·         Set limits on the net foreign exchange position and on the terms and amount of external indebtedness of banks and other financial institutions.

·         Make short and long-term refinancing fa ilities available to banks and other finan ial institutions.

Moreover, the proclamation has also raised the paid-up capital of the Bank from Birr 30.0 million to Birr 50.0 million.

 Vision, Mission and Goals of the National Bank of Ethiopia

The vision, mission and goals of the National Bank of Ethiopia has emanated from the overall vision of the government which is "to see a country, wherein democracy and good governance are prevailed upon the mutual consent and involvement of its people, wherein social justice is reigned, and wherein poverty reduced and income of the citizens reach to a middle economic level".

Vision of the Bank

To be one of the strongest and most reputable central banks in Africa.

Mission of  the Bank

To maintain price and exchange rate stability, to foster a sound financial system and undertake such other functions as are conducive to the economic growth of Ethiopia.

Values of the Bank

A) Core value

 -     Promoting financial and monetary discipline

B)   Individual Values

-         Integrity

-         Neatness and good appearance

-         Punctuality

-         Team work sprit

C) Operational Values

-        Commitment to Excellence Service

-        Confidentiality

-        Continuous Improvement

-        Transparency

-        Accountability    

D) Organizational Strategic Values

-        Pursuit of Excellence and Professionalism

Strategic Goals

Goal 1: Carry out extensive and sound institutional transformation tasks.

Goal 2: Maintain price and exchange rate stability.

Goal 3: Maintain adequate international reserves.

Goal 4: Improve the soundness of the financial system.

Goal 5: Play a decisive role in economic research and policy advice to the Government.

Goal 6: Create efficient Payment System.

Goal 7: Improve the currency management of the Bank.

Objectives

Objectives of Goal 1

·        Identify and conduct Quick wins I activities on continuous basis.

·        Implement BPR studies conducted and ensure their sustainability.

·        Review and update the SPM document of the Bank every two years.

·        In 2005/06, devise a result based scheme that measures the performance evaluation of the work units and individual employees.

·        Identify and have adequate change agents.

·        Improve service delivery of the Bank.

·        Strength IT service and enhance computerization process of the Bank.

·         Enhance the capacity of the Bank.

Objectives of Goal 2

·        Contain annual core inflation (non-food inflation) within a single digit.

·        Maintain the exchange rate of Birr close to the equilibrium exchange rate.

·        Contain the premium between the official and parallel market exchange rate to the level below 1.5 percent.

·        Maintain the premium of respective buying and selling rates of the USD between the NBE and commercial banks below 2 percent.

Objectives of Goal 3

·        Ensure that the international reserves of the country is not less than three and half months of imports of goods and non-factor services.

·         Manage the country's Foreign Exchange Reserve efficiently and effectively.

·         Ensure and manage the effective use of the country's Foreign Exchange.

Objectives of Goal 4

·         Ensure the average level of NPLs of commercial banks is reduced to below 15 percent.

·         Conduct effective on site inspection of banks.

·         Conduct effective on site inspection of insurance companies.

·         Conduct effective on site inspection of micro finance institutions.

·         Issue seven new directives within the SPM period.

·         Amend the existing directives/policies.

·         Ensure systematic risk management framework for each bank.

·         Introduce CAMEL rating of banks.

Objectives of Goal 5

·         Finalize the Ethiopian macro econometric model and start its application

·         Strengthen the Bank's research and policy advisory capabilities and the dissemination of its findings in terms of published research papers and policy discussion forums by 100% each from 4 and 2 to 8 and 4 respectively.

Objectives of  Goal 6

·         Create a National Payment System framework.

·         Conduct structural reforms on the existing payment systems.

       Objectives of  Goal 7

·         Ensure the availability and distribution of the Birr notes and coins.

·         Ensure the automatic provision of Birr notes exchange services

·         Increase the daily note sorting and verification capacity of the bank from the existing Birr 650,000 pcs per day by 60%.

·         Increase the note destruction capacity of the Bank from the existing Birr 700,000 pcs per day by 30%.

·        Assess counterfeiting situations.

Powers & Duties of NBE

To accomplish the above objectives, the Bank has the following powers and duties:

1.      Coins, prints and issues the legal tender currency, and regulates the country's money supply.

2.      Regulates the applicable interest rate and other cost of money charges.

3.      Formulating implements and follows-up the country's exchange rate policy, and manages and administers the international reserves of the country.

4.      Licenses, supervises and regulates the operations of banks, insurance companies and other financial institutions.

5.      Sets limits on gold and foreign exchange assets, which banks, and other financial institutions authorized to deal in foreign exchange an hold in deposits.

6.      Sets limits on the net foreign exchange positions and terms, and the amount of external indebtedness of banks and other financial institutions.

7.      Provides short and long term refinancing fa ilities to banks and other financial institutions.

8.      Accepts deposit of any kind from foreign sources.

9.      Promotes and encourages the dissemination of banking and insurance servi es throughout the country.

10.  Prepares periodic ecnomic studies, together with forecasts of the balance of payments, money supply, prices and other relevant statistical indicators of the Ethiopian economy useful for analysis and for the formulation and determination by the Bank of monetary, saving and exchange policies.

11.  Acts as banker, fiscal agent and financial advisor to the Government.

12.  Represents the country in international monetary institutions and acts consistently with international monetary and banking agreements to which Ethiopia is a party.

13.  Exercises and performs such other powers and activities as central banks customarily perform.