AmendmentInvestment

Limitation on Investment of Banks (Directive No. 192/2021)

National Bank Of Ethiopia192/2021

Summary

This directive amends the previous 'Limitation on Investment of Banks Directive No.SBB/60/2015' by establishing new limits on how banks can invest in non-banking businesses, insurance companies, and real estate. It also clarifies which activities are considered core banking business and which are restricted. Banks must report equity investments and develop internal investment policies.

Who's affected

Banks operating in Ethiopia.

Action required

Banks must review and comply with the new investment limits, report equity investments as specified, and develop or update internal investment policies.

Key points

5
  • Banks are prohibited from directly engaging in insurance business but can hold up to 5% equity.
  • Aggregate equity investment in non-banking businesses cannot exceed 10% of a bank's net worth.
  • Investment in real estate is limited to 10% of net worth (excluding own premises) without prior approval.
    • Show 2 more
    • Banks cannot deal in securities but can offer brokerage services.
    • Banks must report equity investments and establish clear investment policies.

Requirements

8
  • No bank shall directly engage in insurance business, but may hold up to 5% equity shares in a single insurance company.
  • Banks may hold up to 10% equity shares in a single non-banking business other than insurance.
  • A bank's aggregate equity investment in all non-bank businesses shall not exceed 10% of its net worth.
    • Show 5 more
    • No bank shall invest more than 10% of its net worth in real estate acquisition and development, other than for own business premises, without prior approval.
    • No bank shall deal in securities, but may provide securities brokerage services.
    • Banks must report any equity investment (except in financial infrastructure and interest-free banking) to the National Bank within 30 working days.
    • Banks must develop investment policies covering allowable investments, classification criteria, portfolio diversification, reporting, internal audit, and risk management.
    • Equity participation in any financial institution other than an insurance company requires prior National Bank authorization.

Rights and permissions

8
  • A bank may hold equity shares not exceeding 5% of an insurer's subscribed capital in a single insurance company.
  • A bank may hold equity interest in financial infrastructure.
  • A bank may hold up to 10% equity shares in a single non-banking business other than insurance.
    • Show 5 more
    • A bank may engage in interest free banking services.
    • A bank may provide securities brokerage services to its customers acting as their agent.
    • The National Bank may waive investment limits for reasons it deems necessary.
    • Investments made prior to the effective date of this Directive are exempt from certain limitations.
    • Dealing with National Bank or Federal Government Securities, or fully and unconditionally backed securities, is permitted up to face value without exceeding net worth limits.

Restrictions

6
  • Banks are restricted from directly engaging in insurance business beyond a 5% equity stake.
  • Banks are restricted from directly engaging in non-banking businesses other than those specified.
  • Aggregate equity investment in non-bank businesses is capped at 10% of net worth.
    • Show 3 more
    • Investment in real estate acquisition and development is limited to 10% of net worth (excluding own premises) without prior approval.
    • Banks are restricted from dealing in securities.
    • Certain investments are subject to prior authorization from the National Bank.

Penalties

1
  • Not explicitly stated in the provided text.

Objectives

3
  • To ensure banks focus on their core business of debt financing.
  • To manage risks effectively through diversification of business activities and setting investment limits.
  • To promote sound and prudent investment practices by banks.

Organizations

1
  • National Bank of Ethiopia

Legal references

6
  • Banking Business Proclamation No. 592/2008, articles 22(1) and 59(2)
  • National Bank Directive No. SBB/65/2017 (previously issued)
  • National Bank Directive No. SIB/35/2013
    • Show 3 more
    • National Bank Directive No.SBB/51/2011
    • National Bank Directive No. SBB/53/2012
    • Limitation on Investment of Banks Directive No.SBB/60/2015 (repealed)
Original sourcehttps://justice.gov.et/en/directives/limitation-on-investment-of-banks-directive-no-192-2021/
View source