By Kefale Aschale (Legal Compliance Officer)
1. Introduction
National Bank of Ethiopia (NBE) issued a new Treasury Bond Purchase Directive in November,
2022. The New Directive obliges banks to purchase a treasury bond that worth 20 percent of
their monthly loan disbursements.[1] The directive also amended the limits on portfolio shares of
short-term loans, and portfolio share of revolving credit facility. The new portfolio requirements
for short term, and revolving loans amended the requirements provided under Asset
Classification, and Provisioning 5th Replacement) Directive No.SBB/69/2018. It also obliges
banks to report their outstanding disbursements to NBE. The Directive provided penalties on
Banks that does not comply with the requirements. The legal Compliance Unit of the Bank
prepared this legal alert to create clarity among the staffs, so that all staff should execute the
directive with proper understanding.

Percentage, Calculation, and Maturity Period of Treasury Bonds
NBE Directive No. MFAD/TRB0/001/2022 obliges banks to calculate their monthly share of
treasury bonds based on their monthly loans and advance disbursement.[2] Banks must purchase
a monthly sovereign bond that amounts 20 % of their monthly loans, and advance disbursements.
The monthly volume of Treasury Bonds to be purchase solely depends on the amount of new
loans and advances disbursed by a bank during the month.In case of the overdraft disbursements,
the allotment is computed based on the difference of two consecutive months balance using
Annex 2 of the Directive. While, in case of revolving credit disbursements, the allotment shall be
computed on the difference of two consecutive month balance using Annex 3 of the Directive.
For this purpose, every month each bank shall notify the National Bank in writing its own
respective allotment amount using the report form in Annex 1 of this directive within 10 days
after the end of the reference month.
The fund to purchase the Treasury bond is deducted from the banks’ payment and settlement
account held at the National Bank. The maturity period of the Treasury bond is five years. On
the maturity date as specified on the Treasury bond itself, the bond shall be redeemed and
credited to the Payment and Settlement Account of the bank at the National Bank.

Transferability, and Loss of the Treasury Bonds
According to the Directive banks can transfer their treasury bonds to another bank by
endorsement on the back of the Treasury bond itself. Banks can also use the Treasury bond as
collateral for any agreement to be made with banks including with the National Bank. Banks can
also authorize the National Bank to rollover their Treasury Bonds at the maturity date. NBE
issues new Treasury Bonds within two days upon receiving rollover instruction from banks. In
case Treasury Bonds are stolen, lost, mislaid, defaced or damaged, banks shall inform the NBE
in writing with full statements of the circumstances immediately after the loss is discovered. If
theft or malpractice is known or suspected, Banks shall also inform the police immediately.

Limit on Portfolio Share of Short-term Loans, and Revolving Credit Facilities
The New Directive amended the Asset Classification and Provisioning Directive regarding the
Limit on Portfolio Share of Short-term loans, and revolving credit facilities. The Asset
Classification and Provisioning Directive provide that short term loans shall constitute at least
40% of its total loans and advances. However, the new directive provides that the total
outstanding balance of short-term loans of a bank shall not be less than 25 percent of its total
outstanding loans and advances excluding Treasury Bonds outstanding balance at any given
time. Similarly the total outstanding balances of revolving credit facility shall not exceed 15
percent of total outstanding loans and advances of the bank at any given time.

Penalties
Banks that failed to purchase the Treasury Bonds as required under this directive are subject to a
penalty. The penalty is assessed at a maximum lending interest rate on loans and advances
charged by the bank, computed on the allotment amount the bank shall buy and multiplied by the
number of days over which the bank delayed the purchase up to a maximum of ten working days
following the final day of the settlement date. Any bank engaging in any fraudulent activities
when reporting the fresh loan disbursement amount or the allotment amount or in transferring
Treasury Bonds is punishable in accordance with the circumstance of the case Article 26 of the
National Bank Establishment (as Amended) proclamation.