While Ethiopia's banking sector continues expanding, its growth is lagging behind the rapid increases in GDP, according to the National Bank of Ethiopia.
Total bank deposits reached 2.2 trillion birr (38.6 billion dollars) by the end of June 2023, an increase of 24.6 percent from the previous year, the central bank reported. Loans and bonds extended by banks amounted to 1.9 trillion birr (33.3 billion dollars), up 24.3 percent over the same period. Â Â
However, GDP increased at an even faster pace over this time, causing banking sector metrics to decline as percentages of the overall economy. Deposits accounted for 24.8 percent of GDP as of the end of June 2023, down from 28.2 percent the prior year. Loans and bonds made up 21.7 percent of GDP, decreasing from 25.3 percent.Â
"A related positive development is the shift in the loan portfolio, with credits to the private sector now exceeding loans to the public sector since 2021," said the NBE in its latest financial stability report.  Â
The data also showed that loans to the private sector represented 61.7 percent of total bank lending by the end of 2023, while the balance was lent to the public sector.   Â
According to the central bank, reaching international benchmarks for loan market size relative to GDP remains a medium-term objective, which will require continued prioritization of private sector credit to stimulate broader economic growth.
Ethiopia has seen strong economic growth over the last five years, with real GDP expanding at over six percent annually on average, according to the government’s projections.
The rapid pace of growth is expected to continue into the coming years, outpacing the projected averages for Sub-Saharan Africa as a region. While real GDP for SSA is forecast to increase by 3.3 percent in 2023 and four percent in 2024, the central bank expects Ethiopia's economy to grow at a higher clip, sustaining its run of robust expansion.