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Business“Commercial banks not obliged to pay interest on funds collected by new...

“Commercial banks not obliged to pay interest on funds collected by new entrants” NBE

Commercial banks are not obliged to pay interest for financial institutions which are under-formation and have deposited the paid-up capital that they have collected in a closed account, based on the bank establishment proclamation of the country.

In an interview with The Reporter, Director of Bank Supervision at the National Bank of Ethiopia (NBE), Frezer Ayalew said that commercial banks, in which the fund collected by the bank is deposited in, have the right not to pay interest for share companies that are under formation.

“Since the banks that are under-establishment can withdraw the money immediately after they get a license or whenever necessary, they cannot demand interest payment on it,” he said.

Amhara Bank, which has collected a paid-up capital of six billion Birr until its general assembly gathered last month, is among newly established financial institutions that have been asking for an interest payment on the fund it has collected and deposited in 10 commercial banks.

Based on the minimum interest rate on savings in the banking industry, which currently stands at seven percent, Amhara Bank could earn an interest payment of between 420 million Birr and 780 million Birr.

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In an interview with The Reporter on January 30, 2020, Project Manager of Amhara Bank, Mesenbet Shenkutie explained the unwillingness of her bank to leave the money, mentioning that closed account does not mean the banks should not pay interest payments.

“It is just a law put in place to protect investors from misappropriation and misuse of their money,” said Mesenbet.

A senior banker who is currently part of management in another bank that is under- formation, on the other hand, argues differently.

“It is a blocked account. Since the banks have an obligation to administer the money and pay in demand, they cannot pay an interest payment. Even if they want, they cannot do so based on the law of the country,” said the banker. He added “The only way banks under-formation could get interest payment is on the service fee the host bank charges. This is also something done unofficially as it is a gray area in the law.”

Currently, 20 banks have been given the green light to establish banks, while another four are waiting for a license from the NBE. This will bring the total number of commercial banks to 43.

According to the banking business proclamation, capital paid in cash must be deposited in a blocked account in a bank in the name of the prospective bank.

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