Sunday, May 26, 2024
BusinessNew bill allows foreigners open investment banks

New bill allows foreigners open investment banks

They cannot collect deposit and provide loan

Investment banks, in which both foreign and local investors can invest in, will not be allowed to collect deposits and provide loans under the new capital market draft proclamation, The Reporter has learnt.

Last week, Standing Committees of Revenue, Budget and Finance, along with Trade & Industry, discussed the new capital market bill with senior officials of the National Bank of Ethiopia (NBE). This comes a month after Members of Parliament sent the draft proclamation to the Committee for further revision.

During the meeting, members of the Committee asked clarifications on what features investment banks are going to have under the bill and how they are going to involve in the financial sector. MPs also raised their concerns on why foreigners were given the right to open investment banks under the bill, contrary to the existing law that only allows locals and the Diaspora to invest in the financial sector.

Responding to the queries, advisor to the Prime Minister and the National Bank of Ethiopia (NBE), Melesse Minale explained that investment banks are not like existing conventional banks.

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“Investment banks are not going to be given permission to collect deposits and provide loans. They would rather act as an entity that gives advisory services and connect buyers and sellers of stocks,” said Melesse.

According to the draft proclamation, an investment bank means a non-deposit financial institution that facilitates the creation of capital for other companies, governments and other entities through underwriting. It also acts as an intermediary between a securities issuer and the investing public, while serving as a broker or financial adviser for institutional clients, the bill adds.

“They will also facilitate mergers and acquisitions,” Melesse added.

MPs asked senior officials of the NBE, including Governor of the Central Bank, Yinager Dessie (PhD) on why foreigners were allowed to open investment banks under the draft proclamation.

“We have few professionals specialized in such areas. So it is critical to allow foreigners open investment banks or engage in similar activities to scale-up the skills of our professionals in the area through knowledge transfers,” Yinager said.

Expected to boost economic growth, Ethiopia’s stock market is expected to be instituted in less than a year, upon the approval of the bill, which will pave the way to the establishment of the Ethiopia Securities Exchange.

ESX will be established through the partnership of the public and the private sector, including foreign investors. While the government and state-owned entities will have 25 percent stake in the exchange, private entities will be given the chance to own 75 percent of the capital.

While ESX will be based in Addis Ababa, the bill will also allow the establishment of another exchange markets in other cities.

“Dire Dawa or other cities can have their own stock exchanges as long as they fulfill the requirement,” said Melesse.

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