Officials at the National Bank of Ethiopia (NBE) expect drafting process of the legal frameworks that would allow foreign competition enter the banking sector to be completed within two months.
The stakeholders’ consultation process on proclamation for banking liberalization will be finalized and tabled for ratification at the House of Peoples’ Representatives (HPR) within two months, Mamo Mihretu, governor of NBE said.
Since the Council of Ministers (CoM) approved the policy to open up the banking sector eight months ago, the central bank has been preparing the proclamation and all legal frameworks that will allow foreign firms to enter Ethiopia.
Mamo stated that the process is nearing its conclusion, as local financial institutions have already provided feedback for the revision of the draft document.
The Governor expressed his office’s readiness to send the draft to Parliament for ratification after receiving additional feedback from local and also international institutions. Local banks, he says, have held discussions with the central bank, and the draft is being revised based on their feedback.
He told a group of investors, “we share the draft document not only with the local banking industry but also with international financial institutions with a plan to invest in Ethiopia.” He said he would be “more than happy” to get feedbacks from the international investors.
In a panel discussion held on April 26, 2023, during the launch of the Invest Ethiopia Forum, Mamo discussed the ongoing reforms in the financial sector.
Among the reforms is the financial sector’s new emphasis on private investors. He stated that the private sector received 90 percent of the loan disbursements over the past six months. This is a significant departure from previous trends in Ethiopia, where the public sector was a major recipient of loans.
Citing the process of opening up mobile money services to foreign companies, he reassured forum attendees that Safaricom’s M-Pesa is expected to be the first to receive the license.
“We are about to give them their license, hopefully within two weeks,” he stated.
The financial sector had been open for foreign investors since the banking policy’s approval in early September 2022, similar to mobile money services, but possibly to be realized later due to unfinished legal frameworks.
Officials plan to make foreign direct investments (FDI) the primary source of foreign currency inflows after approving the draft of the second Homegrown Economic Reform Agenda (HGER 2.0). The opening of banking services is expected to increase FDI.
The policy document that the Council approved allows foreign banks to acquire up to a 30 percent stake in domestic banks, as well as five percent stakes for foreign individuals and another five percent for non-banking investors. Currently at the NBE, the draft proposes four entry modalities for foreign banks into Ethiopia. The banks can open a branch, a commercial representative office, a subsidiary, or acquire up to 30 percent of a local bank’s shares.
As a regulator of the country’s financial sector, NBE is responsible for institutional and policy frameworks. Mamo is thrilled to be able to take concrete steps to open up the market. “The process might take a couple of months, and we will table it for ratification,” he said.
