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Banking in Ethiopia
Banking in Ethiopia
Banking is a rapidly growing industry in Ethiopia. Currently there are 3 state owned and 16
private commercial banks; Commercial Bank of Ethiopia is the largest, controlling the majority
assets of the industry.
Despite strict government regulations through lending quota, bond buying, windfall tax and
increased capital requirements, banks are reporting strong profit and paying high dividends.
The following is a brief highlight of the governing banking business law, Proclamation No.
592/2008.
All banks have to be licensed by the countries’ financial regulatory body, the National Bank of
Ethiopia to engage in banking business. Banking, microcredit and saving businesses are areas of
investment exclusively reserved for Ethiopian nationals. Foreign nationals or organizations fully
or partially owned by foreign nationals are not allowed to acquire share of Ethiopian banks, to
open banks or offices, or subsidiaries of foreign banks in Ethiopia.
A Bank is formed as a share company and its memorandum and articles of association must
obtain approval from the National Bank of Ethiopia.
The following are the Preconditions need to be fulfilled in order to obtain banking business
license:
After accepting the completed application, required information and payment of licensing fee,
the NBE decides on the licensing application within 90 days.
Bank shares are of one class and registered as ordinary shares of the same par value. There are
some restrictions and regulations on acquisition of shares. For example, except the Federal
Government, a person including his wife and dependants less than 18 years and related to him by
blood may not acquire more than 5 percent of a bank’s total shares. The national bank also limits
the amount of shares that may be held in a bank by a company which is partially or fully owned
by persons who have shares in the bank.
Share holders who hold directly or indirectly two percent or more of the total subscribed capital
of a bank may not acquire shares in other banks. Such persons are called influential shareholders.
And any transfer of share that makes any person influential shareholder requires approval by the
National Bank before such transfer is recorded in the register of shares.
The National Bank has broad powers in the affairs of banks. It can suspend or remove a CEO,
director or other senior executives, limit the number of votes by proxy in share holders meeting
and voting right of holders who borrowed money from the bank. It also can suspend voting right
of an influential shareholder when he fails to fulfill the ethical requirements of the National
Bank.
Appointment of directors, CEO, or senior executive officers must be approved by the NBE.
Terms of office, qualification, number of directors in the board and remuneration are also acts
under strict supervision of the National Bank.
The banking business proclamation No. 592/2008 provides for criminal prosecution and penalty
for acts which are in contravention to the law. For instance, transacting in a banking business
without license, introducing new banking services, merger or takeover, entering into any
arrangement or agreement for the sale or disposal, by amalgamation or otherwise, of its business,
or effect major changes in its line of business, transfer or otherwise dispose of the whole or any
part of its property, whether in or out of Ethiopia without prior approval by the NBE will be
punishable with rigorous imprisonment from 10 to 15 years and with a fine of Birr20,000.