Friday, September 22, 2023
BusinessArmy bank on the horizon

Army bank on the horizon

The Ethiopian Defense Foundation and the Ministry of Defense are preparing to establish the first army bank in Ethiopia. The feasibility study has been completed and has demonstrated the viability of such a bank.

Officials of the Ministry of Defense disclosed the plans and preparations underway to form the army bank, while presenting the Ministry’s first half year performance report to the Foreign Affairs and Peace Standing Committee of the Parliament last week.

State Minister of Defense Martha Luwiji informed the Committee during her presentation that the feasibility study had been completed. The performance reached 25 percent. The Army Foundation has a deep conviction in the necessity of an army bank, and preparation work is currently continuing, according to Martha.

10 years ago was when the very first attempt was made to establish the army bank. Back in 2012, Siraj Fegessa, who was serving as Minister of Defense at the time, made the plan public. Despite this, the process did not result in any fruitful outcomes at the time. The National Bank of Ethiopia (NBE) is currently in the process of implementing the Foundation’s and the Ministry’s newly revitalized goals, which means that the processes are already under way.

A new bank must have a minimum paid-up capital of five billion birr in order to obtain a banking license from the central bank, according to a new directive that was issued by the NBE one year ago. The previous threshold of 500 million birr was increased to the current level last year.

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Nearly twenty banks in preparation had to halt their preparation as they were unable to raise the necessary capital from shareholders as the NBE amplified the capital requirement by tenfold. In spite of this, the number of commercial banks in the country has increased from just 18 to a whopping 29 in just the past two years alone.

In addition to contributions from other sources, capital for the army bank is anticipated from the Foundation. Nevertheless, there is not yet a well-defined roadmap that indicates whether the Army Bank will offer shares to the general public or whether the shareholders will be limited to institutional stakeholders.

Soon, the government will give local banks the green light to sell up to 40 percent of their stakes to foreign investors. This comes on the heels of the government opening up the banking industry to investors from other countries.

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