To ensure the stability of the financial system as it moves toward liberalization, the central bank, expected to receive the new establishment proclamation at the beginning of the New Year, will undergo institutional reorganization, including the establishment of new departments.
With the upcoming banking business proclamation, the central bank has clarified that it will not be deregulating the financial industry.
In recent appearances before Parliament, NBE Governor Mamo Esmelealem Mihretu addressed the two highly anticipated proclamations aimed at liberalizing the banking industry and enhancing the operations of the National Bank of Ethiopia (NBE). He stated that the regulatory body will reorganize its approach to drive the economy with a modernized system, facilitated by the changes in the NBE formation proclamation.
According to the draft proclamation, which is expected to be approved in the coming weeks, the central bank will establish a new committee. During a two-day session, which included a public hearing, Mamo outlined how the new proclamation will create a seven-member monetary policy committee. This committee will be responsible for developing and recommending monetary policy for the Board’s approval.
On the governor’s recommendation, the NBE Board will nominate two external experts, not employed by NBE, to join the monetary committee, which will be led by the governor and the vice governor as deputy. Mamo explained that the committee, which will meet at least every two months, will propose monetary policies for the nation, including determining the National Bank Rate (NBR). At the beginning of the fiscal year, the NBE sets a policy rate of 15 percent.
Another new initiative established under the new proclamation is the Financial Stability Committee. This committee will propose macro and micro prudential policies for the Board’s decision-making and will regularly assess, analyze, and identify systemic risks to the financial system during its monthly meetings.
The Board will also make decisions regarding policies related to the lender of last resort and other crisis management tools available to the National Bank based on recommendations from the committee.
According to the governor, the new banking business proclamation will significantly amend the 2008 law, making the financial industry accessible to international players. This will allow international banks to obtain licenses for various types of business in Ethiopia.
In response to concerns, the governor assured that while the industry will open to international players, it will not be deregulated. Frezer Ayalew, director of the Banking Supervision Directorate, added that the proclamation includes several provisions to protect local financial institutions as the industry opens up to competition.
The draft proclamation outlines two ways for the diaspora to invest in the financial sector. Mesfin Getachew, Legal Directorate Director at NBE, stated that Ethiopian-born foreign nationals can invest in local currency as Ethiopians or in foreign currency. However, if they choose to invest in local currency, they will receive their earnings in birr.
