NewInvestment

Limitations on Investment of Banks (Directive No. 1016/2024)

National Bank Of Ethiopia1016/2024

Summary

This directive establishes limitations on the investment and financing activities of banks operating in Ethiopia to ensure sound and prudent practices, manage risks, and encourage investment in capital market service providers while safeguarding the core banking business.

Who's affected

All banks operating in Ethiopia, including private and state-owned entities licensed by the National Bank.

Action required

Banks must review their investment policies to comply with the new limitations and ensure they have procedures in place for reporting equity investments to the National Bank.

Key points

7
  • Establishes specific percentage limits for bank investments in insurance companies, capital market service providers, and other non-banking businesses.
  • Sets an aggregate limit for equity investments in all non-bank businesses at 15% of a bank's total capital.
  • Imposes a limit of 10% of total capital for real estate acquisition and development, excluding business premises.
    • Show 4 more
    • Prohibits banks from directly engaging in insurance or capital market service provision.
    • Requires banks to report equity investments to the National Bank within 30 working days.
    • Mandates the development of comprehensive internal investment policies by banks.
    • Specifies certain exceptions to the investment limitations, including for interest-free banking and government securities.

Requirements

9
  • Banks must adhere to specific limits on equity shares in insurance companies (not exceeding 5% of subscribed capital).
  • Banks can acquire up to 100% equity shares in capital market service providers (excluding credit rating agencies) with prior approval.
  • Banks can hold equity interest in financial infrastructure.
    • Show 6 more
    • Banks can hold up to 10% equity shares in a single non-banking business (other than insurance).
    • Aggregate equity investment in all non-bank businesses shall not exceed 15% of a bank's total capital.
    • No bank shall invest more than 10% of its total capital in real estate acquisition and development (for purposes other than own premises) without prior approval.
    • Banks must report equity investments (except in financial infrastructure and interest-free banking related businesses) to the National Bank within 30 working days.
    • Banks shall develop investment policies covering allowable investments, classification criteria, diversification, reporting, internal audit responsibilities, and risk management.
    • The National Bank Directive on Large Exposures to Counterparty or Group of Connected Counterparties Directive No. SBB/87/2024 shall apply to interest-free banking businesses mutatis mutandis.

Rights and permissions

8
  • Banks may hold equity shares in a single insurance company not exceeding 5% of the subscribed capital.
  • Banks may acquire up to 100% equity shares in a capital market service provider, excluding credit rating agency, subject to prior approval.
  • Banks may hold equity interest in financial infrastructure.
    • Show 5 more
    • Banks may hold up to 10% equity shares in a single non-banking business other than insurance.
    • The National Bank may waive investment limits for necessary reasons.
    • Prudential limits and restrictions do not apply to certain interest-free banking businesses funded by restricted or unrestricted investment accounts.
    • Prudential limits and restrictions do not apply to investments made prior to the effective date of the repealed Directive No. SBB/65/2017, or for banks transformed from microfinance institutions, under specific conditions.
    • Prudential limits and restrictions do not apply to dealing with the National Bank or Federal Government Securities under specific conditions.

Restrictions

6
  • Banks cannot directly engage in insurance business.
  • Banks cannot be a capital market service provider.
  • Banks cannot engage in non-banking businesses other than those specified.
    • Show 3 more
    • Banks cannot hold equity shares in a credit rating agency.
    • Aggregate equity investment in all non-bank businesses shall not exceed 15% of a bank's total capital.
    • Investment in real estate acquisition and development (other than own premises) is limited to 10% of total capital without prior approval.

Objectives

5
  • To ensure sound and prudent investment practices by banks.
  • To effectively manage risks associated with bank investments.
  • To diversify business activities and set limits for investments.
    • Show 2 more
    • To encourage investment in capital market service providers.
    • To ensure banks focus on their core business of debt financing and interest-free banking.

Organizations

2
  • National Bank of Ethiopia
  • Federal Government of Ethiopia

Legal references

5
  • Banking Business Proclamation No. 592/2008
  • Banking Business Proclamation No. 1159/2019
  • Capital Market Proclamation No. 1248/2021
    • Show 2 more
    • National Bank Directive on Large Exposures to Counterparty or Group of Connected Counterparties Directive No. SBB/87/2024
    • Limitation on Investment of Banks Directive No. SBB/65/2017
Original sourcehttps://justice.gov.et/en/directives/limitations-on-investment-of-banks-directive-no-1016-2024/
View source