National Bank of Ethiopia, IFC Sign Framework to Establish 100 Billion Birr Mortgage Refinance Company
The National Bank of Ethiopia (NBE) and the International Finance Corporation (IFC) have signed a Framework for Cooperation to establish Ethiopia’s first dedicated Mortgage Refinance Company, with a planned capitalization of 100 billion Ethiopian birr.
The framework was signed in the presence of Ethiopian Prime Minister Abiy Ahmed Ali and is intended to expand access to long-term mortgage financing while addressing liquidity challenges facing commercial banks.
The proposed company will operate as a wholesale lender in the secondary mortgage market, purchasing long-term mortgage portfolios from commercial banks. This is expected to provide banks with additional liquidity to issue new mortgage loans.
How Ethiopia’s Mortgage Refinance Company Will Support Banks
Commercial banks in Ethiopia typically rely on short-term deposits to fund their operations, while mortgage loans can run for periods of up to 20 years. The mismatch between short-term funding and long-term housing loans can place pressure on banks’ balance sheets.
The mortgage refinance company is expected to address this mismatch by providing longer-term liquidity to participating financial institutions.
By purchasing mortgage portfolios from commercial banks, the facility will free up capital that banks can use to finance additional home loans.
The arrangement is also expected to increase liquidity in the mortgage market and support competition in mortgage lending, potentially reducing financing costs for borrowers.
IFC to Contribute at Least $200 Million
The IFC will serve as an anchor foreign investor in the new institution, with a minimum capital contribution of $200 million toward the planned 100 billion birr capitalization.
The corporation will also support the development of the secondary mortgage market framework based on international practices.
Under the cooperation framework, the IFC will be responsible for helping establish risk management and underwriting standards for participating banks. These standards are intended to guide mortgage lending and risk assessment.
The IFC will also seek to mobilise additional private domestic and foreign capital for Ethiopia’s housing finance market.
NBE to Provide Regulatory Oversight
The National Bank of Ethiopia will oversee the regulatory and licensing framework governing the new mortgage refinance company.
The central bank will also coordinate the remaining capitalization required to reach the 100 billion birr target and oversee the integration of the facility into Ethiopia’s banking system.
NBE will determine the commercial banks eligible to participate in the mortgage refinancing facility and transfer qualifying mortgage portfolios to the institution.
The central bank will also oversee the expansion of long-term housing credit in line with its monetary and financial stability policies.
Mortgage Refinancing Linked to Ethiopia’s Housing Target
The establishment of the mortgage refinance company is linked to Ethiopia’s housing development plans, which target the delivery of 1.5 million affordable homes for Ethiopian families.
The new wholesale financing institution is expected to provide additional funding capacity for banks involved in mortgage lending, while increasing private-sector participation in housing development.
Additional liquidity for commercial lenders could also support financing for real estate developers involved in large-scale housing projects.
The housing programme is expected to generate demand across industries connected to construction, including cement, glass, steel, furniture and other building-related supplies.
