Parliament anticipates new proclamation to revamp banking sector and attract foreign investment

A proclamation has been presented that would allow local financial institutions to form subsidiaries. The draft proclamation for the banking industry also suggests the establishment of specialized financial institutions.

The parliament is eagerly awaiting the proclamation that will allow foreign investors to participate in Ethiopia’s banking sector.

Banks will be able to establish subsidiaries under the proposed proclamation, which will amend Proclamation No. 592/2008, published in 2008 and revised in 2019.

The participation of current deposit-taking institutions is seen as essential for the development of the future capital market, the Ethiopian Securities Exchange.

However, their participation will be in a different capacity from their current role. It is expected that the National Bank of Ethiopia (NBE) will pass legislation allowing commercial banks to establish subsidiaries that are not directly connected to their current activities.

The Ethiopian Capital Market Authority has also stated on multiple occasions that discussions have taken place with the NBE regarding allowing banks to operate as separate entities, as it is not currently permitted by existing law.

As a result, a provision for the creation of subsidiaries has been included in the draft proclamation. Article 66.1 of the proposed proclamation states that the NBE may allow a bank to form a subsidiary, with the specifics to be determined by a directive.

Similarly, the draft proclamation permits the creation of specialized banks. According to the document, the NBE could approve the establishment or conversion of a specialized bank.
The draft proclamation defines a specialized bank as one that focuses on providing specialized banking services to specific market segments or sectors of the economy, such as mortgages, export/import, agriculture, cooperatives, small and microbusinesses, and other industries specified in the NBE directive.

As a player in the nation’s specialized banking sector, there is interest in investing in the financial sector. However, the absence of appropriate legislation has been identified as a hurdle.

Financial institutions such as Goh Betoch Bank, which was established as a commercial bank but wishes to focus on specific industries, have requested that the regulatory body create an environment that enables them to carry out their intended operations.

In addition to establishing subsidiaries for housing and associated schemes, Goh, the only mortgage bank, has requested that the regulatory body provide more opportunities for long-term financing and other services, such as resource mobilization and cooperation methods.

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