AmendmentInvestment

Capital Goods Finance Operational Modality (Amendment) (Directive No. 788/2021)

National Bank Of Ethiopia778/2021

Summary

This directive amends the minimum paid-up capital requirements for banks in Ethiopia, increasing it to Birr 5 Billion for new banking licenses and providing transitional provisions for existing banks, banks under formation, and microfinance institutions seeking to become banks. It also repeals Directive Number SBB/50/2011.

Who's affected

Existing banks, banks in formation, banks undergoing share subscription, and microfinance institutions seeking to be relicensed as banks.

Action required

Banks must ensure compliance with the new minimum paid-up capital requirements and submit action plans for capital increases to the National Bank by specified deadlines.

Key points

5
  • Minimum paid-up capital for banking license increased to Birr 5 Billion.
  • Existing banks have until June 30, 2026, to meet the new capital requirement.
  • Transitional provisions allow certain banks and relicensed microfinance institutions to operate with Birr 500 Million capital initially.
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    • All banks must maintain an 8% capital to risk-weighted assets ratio.
    • Directive SBB/50/2011 is repealed.

Requirements

7
  • New banking business licenses require a minimum paid-up capital of Birr 5 Billion, fully paid in cash.
  • Existing banks with paid-up capital below Birr 5 Billion must raise it to Birr 5 Billion by June 30, 2026, and submit an action plan within 30 days of the directive's effective date.
  • Banks under formation must comply with the Birr 5 Billion capital requirement within 7 years of commencing operations and submit an action plan.
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    • Banks in the process of share subscription that collect Birr 500 Million from founding shareholders and submit a final application within 6 months of the directive's effective date can obtain a license with Birr 500 Million paid-up capital, but must comply with the Birr 5 Billion requirement within 7 years of commencing operations and submit an action plan.
    • Microfinance institutions applying for a banking license within 6 months of the directive's effective date, fulfilling specific requirements, can be relicensed with Birr 500 Million paid-up capital, but must comply with the Birr 5 Billion requirement within 7 years of commencing operations and submit an action plan.
    • All licensed banks must maintain a capital to risk-weighted assets ratio of at least 8% at all times.
    • Voluntary merger or acquisition transactions require prior consent and approval from the National Bank.

Rights and permissions

3
  • Banks under formation can obtain a license with Birr 500 Million paid-up capital under specific conditions, with a grace period to meet the Birr 5 Billion requirement.
  • Microfinance institutions can be relicensed as banks with Birr 500 Million paid-up capital under specific conditions, with a grace period to meet the Birr 5 Billion requirement.
  • Licensed banks facing difficulty in meeting minimum paid-up capital may undertake voluntary merger or acquisition transactions with National Bank approval.

Restrictions

4
  • A minimum paid-up capital of Birr 5 Billion is required to obtain a banking business license.
  • Existing banks below Birr 5 Billion capital have a deadline of June 30, 2026, to comply.
  • Banks must submit action plans for capital increases.
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    • Merger or acquisition transactions require National Bank consent and approval.

Penalties

3
  • Failure to comply with the minimum paid-up capital requirement may result in the bank being put under receivership.
  • An appointed receiver may be required to dissolve the bank through merger with another bank.
  • The National Bank may take any other measures it considers fit in case of non-compliance.

Objectives

4
  • To raise the minimum paid-up capital required for banks.
  • To further improve the financial resilience and soundness of banks and the banking system.
  • To ensure the existence of strong, capable, and well-capitalized banks for resource mobilization and meeting national economic financing needs.
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    • To raise the minimum capital required to establish a new bank to enable successful operation and competition.

Organizations

1
  • National Bank of Ethiopia

Legal references

4
  • Banking Business Proclamation No. 592/2008
  • Proclamation No. 1159/2019
  • Requirements for Relicensing a Microfinance Institution as a Bank Directive No. SBB/74/2020
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    • Minimum Capital Requirement for Banks Directive Number SBB/50/2011
Original sourcehttps://justice.gov.et/en/directives/capital-goods-finance-operational-modality-amendment-directive-no-788-2021/
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