The National Bank of Ethiopia (NBE) is revising the Banking Business Proclamation, as part of its legal framework amendment aimed at allowing foreign banks to operate in Ethiopia. The revision includes setting a minimum capital for foreign banks to enter Ethiopia on a joint venture basis first.
A team of experts from foreign consultants and development partners are currently working on the revision, upon the request from the Office of the Prime Minister.
“One of the legal revisions we are doing currently is revising the Banking Business Proclamation. The existing proclamation does not allow foreign banks to come and operate in Ethiopia,” Yinager Dessie (PhD), governor of the central bank, told the media on May 19, 2022, during an event held at the Hyatt Regency hotel.
Many African banks are already showing interest to come and invest in Ethiopia, according Yinager.
“We are creating the right environment for that. Once we finalize the legal procedures revision, the banking sector will be opened. The opening up will be done in a win-win situation, without affecting local banks. Opening-up will highly benefit the economy, local banks and also other businesses,” said Yinager.
According to a consultant working on the revisions, the opening up of the sector will be gradual.
“The opening up might only be limited to regional banks, probably like echo bank, or standard bank, in a joint venture basis with local banks. That will be easily manageable for the central bank. The first target is to boost the foreign currency inflow. There are many legal framework revisions underway and many are in a draft stage,” said the consultant.
Once the legal procedure revisions and capacity building for the regulatory body is up-scaled, the opening up will start.
“Ethiopia is one of very few countries that did not open up their financial sector so far. For long, there has been a push to open Ethiopia’s banking industry. Now that the government is nearing to open the sector, some are opposing it. There are oppositions whenever a new policy comes, and that is natural,” added Yinager.
The Digital Payment Proclamation, which will enable the NBE to license foreign Fintech companies to operate in Ethiopia, for the first time, is also underway, according to Solomon Desta, vice governor at the bank.
The central bank is also crafting a new legal framework that aims to establish specialized banks, including agricultural, SME, and Mortgage banks.
In tandem with the proclamation, the Financial Services Code, which has been in place for the past six decades, is being revised. A team of experts from the NBE, Ministry of Justice, Bankers and Insurance Association, embarked on the amendment last month, setting a schedule to finalize it in six months.
The existing Banking Business Proclamation was amended after a decade in September 2019. It states “Foreign Nationals or Organizations fully or partially owned by Foreign Nationals may not be allowed to open Banks or Branch Offices or subsidiaries of Foreign Banks in Ethiopia or acquire the shares of Ethiopian banks.”